Interest rates
- Created by: Shreeya Bhan
- Created on: 10-04-13 15:39
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- Types of interest rates
- Real rate: purchasing power
- Nominal: inflation
- ex ante nominal: desired real rate of return plus an adjustment for expected inflation
- Interest Rates
- Fisher effect: relationship between real rates, nominal rates, and inflation: R=r+h
- Long-term bonds are more sensitive to interest rate change than short-term bonds
- Low coupon rate bonds are more sensitive to interest rate change than high coupon rate bonds
- Term structure is the relationship between time to maturity and yields, all else equal: Normal – upward-sloping, long-term yields are higher than short-term yields (LT > ST rates) " Inverted – downward-sloping, long-term yields are lower than short-term yields (ST < LT rates) " Humped shape
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