1、Chapter 4Understanding Interest RatesPresent ValueA dollar paid to you one year from now is less valuable than a dollar paid to you todayWhy?A dollar deposited today can earn interest and e $1 x (1+i) one year from today. Discounting the FutureSimple Present ValueTime Line$100$100Year01PV1002$100$10

2、0n100/(1+i)100/(1+i)2100/(1+i)nCannot directly compare payments scheduled in different points in the time lineFour Types of Credit Market InstrumentsSimple LoanFixed Payment LoanCoupon BondDiscount BondYield to MaturityThe interest rate that equates the present value of cash flow payments received f

3、rom a debt instrument with its value todaySimple LoanFixed Payment LoanCoupon BondWhen the coupon bond is priced at its face value, the yield to maturity equals the coupon rateThe price of a coupon bond and the yield to maturity are negatively relatedThe yield to maturity is greater than the coupon

4、rate when the bond price is below its face valueTable 1 Yields to Maturity on a 10%-Coupon-Rate Bond Maturing in Ten Years(Face Value = $1,000)Consol or PerpetuityA bond with no maturity date that does not repay principal but pays fixed coupon payments foreverFor coupon bonds, this equation gives th

5、e current yield, an easy to calculate approximation to the yield to maturityDiscount Bond 2006 Pearson Addison-Wesley. All rights reserved1-14Other Measures of Interest Rates 2006 Pearson Addison-Wesley. All rights reserved1-15Current Yield、 C ic = P Two CharacteristicsIs better approximation to yie

6、ld to maturity, nearer price is to par and longer is maturity of bondChange in current yield always signals change in same direction as yield to maturity 2006 Pearson Addison-Wesley. All rights reserved1-16Yield on a Discount Basis (F P) 360idb = x F (number of days to maturity)One year bill, P = $9

7、00, F = $1000 $1000 $900 360idb = x = 0.099 = 9.9% $1000 365Two CharacteristicsUnderstates yield to maturity; longer the maturity, greater is understatementChange in discount yield always signals change in same direction as yield to maturity 2006 Pearson Addison-Wesley. All rights reserved1-17Bond P

8、age of the NewspaperRate of ReturnRate of Return and Interest RatesThe return equals the yield to maturity only if the holding period equals the time to maturityA rise in interest rates is associated with a fall in bond prices, resulting in a capital loss if time to maturity is longer than the holdi

9、ng periodThe more distant a bonds maturity, the greater the size of the percentage price change associated with an interest-rate changeRate of Return and Interest Rates (contd)The more distant a bonds maturity, the lower the rate of return the occurs as a result of an increase in the interest rateEv

10、en if a bond has a substantial initial interest rate, its return can be negative if interest rates rise Table 2 One-Year Returns on Different-Maturity 10%-Coupon-Rate Bonds When Interest Rates Rise from 10% to 20%Interest-Rate RiskPrices and returns for long-term bonds are more volatile than those f

11、or shorter-term bondsThere is no interest-rate risk for any bond whose time to maturity matches the holding periodReal and Nominal Interest RatesNominal interest rate makes no allowance for inflationReal interest rate is adjusted for changes in price level so it more accurately reflects the cost of

12、borrowingEx ante real interest rate is adjusted for expected changes in the price levelEx post real interest rate is adjusted for actual changes in the price levelFisher EquationFIGURE 1 Real and Nominal Interest Rates (Three-Month Treasury Bill), 19532008Sources: Nominal rates from . The real rate is constructed using the procedure outlined in Frederic S. Mishkin, “The Real Interest Rate: An Empirical Investigation,” Carnegie-Rochester Conference Series on Public Policy 15 (1981): 151200. Thi