ECON 310 Chapter 4: Chapter 4 Understanding Interest Rates

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Interest rate the cost of borrowing, or the price paid for renting funds: affects personal and business decisions, such as whether to consume or save, to buy a house/car or invest in stocks, expand business, etc. Yield to maturity interest rate that equates the present value of cash flow payments received with its value today; most accurate measure of interest rate. Rate of return = current yield + rate of capital gain. Real interest rate = nominal interest rate expected inflation rate.

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