Chapter 6 - CHAPTER 6 Interest Rates Determinants of...

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    6-1 CHAPTER 6 Interest Rates Determinants of interest rates The term structure and yield  curves
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    6-2 “Nominal” vs. “Real” rates r = represents any nominal rate r* = represents the “real” risk-free rate  of interest.  Like a T-bill rate, if there  was no inflation.  Typically ranges  from 1% to 4% per year. r RF = represents the rate of interest on  Treasury securities.
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    6-3 Determinants of interest rates r = r* + IP + DRP + LP + MRP r   = required return on a debt security r* = real risk-free rate of interest IP = inflation premium DRP= default risk premium LP = liquidity premium MRP= maturity risk premium
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    6-4 Premiums added to r* for  different types of debt IP MR P DR P LP S-T Treasury L-T Treasury S-T Corporate L-T Corporate
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    6-5 Yield curve and the term  structure of interest rates Term structure –  relationship between  interest rates (or  yields) and maturities. The yield curve is a 
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This note was uploaded on 04/09/2008 for the course BADM 310 taught by Professor O'brien during the Spring '08 term at SD State.

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Chapter 6 - CHAPTER 6 Interest Rates Determinants of...

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