ACCT 201 Lecture Notes - Lecture 10: Nominal Interest Rate, Risk-Free Interest Rate, Real Interest Rate
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We move on to explore the world of interest rates and bonds. Currently interest rates on investments, and on borrowing (mortgages, car loans, etc. ) are near historic lows. We explore the concept of (cid:498)interest rate risk(cid:499) i. e. , when interest rates rise, the price of bonds falls. This chapter explores why interest rates vary from one bond to another. We also examine the factors that cause interest rates to move. Theories of term structure: expectations theory, liquidity preference theory, market segmentation theory. Bond indenture: standard debt provisions, restrictive covenants, subordination, sinking fund requirement, trustee. Call (of a bond: call feature, call price, call premium. Bond yields: current yield, yield-to-maturity (ytm, yield-to-call (ytc) And many more, some specific to certain countries. Readings and videos: please read (cid:498))nterest rate fundamentals(cid:499) found in section (cid:888). (cid:883) of the textbook, (cid:498))nterest. Compensation that a supplier of funds expects, and a demander of funds must pay. Interest rate- debt instruments such as bank loans or bonds.