ACCT 001A Lecture Notes - Lecture 12: Nominal Interest Rate, Real Interest Rate, United States Treasury Security
19 May 2020
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Document Summary
Instead, investment banks purchase treasury notes and bonds and then resell each coupon and principal payment separately as a zero-coupon bond. Munis: municipal securities: debt of state and local governents, varying degrees of default risk, rated similar to corporate debt. Interest received is tax-exempt at the federal level (and sometimes at the state and local level as well: sometimes referred to as tax-exempt bonds. The fisher effect: defines the relationship between real rates, nominal rates, and inflation, (1+r) = (1+r)(1+pi, r = nominal interest rate, r = real interest rate, pi = expected inflation rate. Term structure of interest rates: term structure is the relationship between time to maturity and yields, all else equal. Inverted: downward-sloping, long-term yields are lower than short-term yields: interest rates are not constant through maturity. Why is there a term structure of interest rates: expected future inflations.
