ECON 3K03 Lecture Notes - Lecture 4: Ex-Ante, Pearson Education, Real Interest Rate
8 Feb 2015
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The economics of money, banking, and financial markets. Learning objectives: detail the present value concept and the meaning of the term interest rate, discern among the ways of measuring the interest. Illustrate how bond prices and interest rates are negatively related: explain the difference between nominal and real interest rates, assess the difference between interest rates and rates of return. A dollar paid to you one year from now is less valuable than a dollar paid to you today. Why: a dollar deposited today can earn interest and become. Cf = future cash flow or payments i = interest rate. Four types of credit market instruments: simple loan. Principal is repaid at the maturity date with interest: fixed payment loan. Principal is repaid by making the same payment (principal + interest) every period for a set period of time. The interest rate that equates the present value of cash flow payments received from a debt instrument with its value today.
