chap6 - 6-1CHAPTER 6Interest RatesDeterminants of interest...

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Unformatted text preview: 6-1CHAPTER 6Interest RatesDeterminants of interest ratesThe term structure and yield curves6-2Why are these rates different?3-month Treasury Bill1.79%5-year Treasury Note3.01%5-year AAA Corporate Bond(B&F) 4.37%10-year Treasury bond3.80%10-year AAA Corporate Bond(B&F)5.43%30-year Treasury bond4.54%5-year TIPs0.68%10-year TIPs1.36%TIPs = Treasury Inflation Protected Securities6-3What four factors affect the level of interest rates?Production opportunitiesTime preferences for consumptionRiskExpected inflation6-4Nominal vs. Real ratesr= represents any nominal rater*= 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.rRF= represents the rate of interest on Treasury securities.6-5Determinants of interest ratesr = r* + IP + DRP + LP + MRPr = required return on a debt security...
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chap6 - 6-1CHAPTER 6Interest RatesDeterminants of interest...

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