Sample course presentation materials
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© The McGraw-Hill Companies, Inc., 1999, 2000, 2001, 2002
The Investor, Inc. 1999, 2000, 2001, 2002.
CHAPTER 5 History of Interest Rates and Risk Premiums CHAPTER OVERVIEW
This chapter includes two major sections. The first section of the chapter describes the major factors influencing the level of interest rates and discusses the Fisher Effect. The second part of the chapter presents information on historical risk/return data on different types of financial assets and presents statistical calculations of risk and returns measures, both ex post and ex ante.
LEARNING OBJECTIVES
After covering the chapter, the students should be able to describe the major factors that influence the level of interest rates and be able to apply the Fisher effect to interest rates and inflation. Students should be able to calculate risk and return statistical measures, such as holding period returns, average returns, expected returns, and standard deviations, ex post and ex ante.
Presentation of Material
1. Determinants of the Level of Interest Rates
A list of the major factors that influence interest rates is presented in T 5-2. T 5-3 displays a graph of the supply and demand for loanable funds. The graph shows the impact that a greater demand for funds would have on rates given no change in the supply of funds.
T 5-2 Factors Influencing Rates:
T 5-3 Levels of Rates:
The concept of real versus nominal rates and the Fisher Effect is covered in T 5-4. The approximation and the exact specifications will be very close except at very high rates of inflation. The empirical evidence shows that interest rates and inflation move closely together.
T 5-4 Real vs. Nominal Rates:
End of Sample course presentation materials
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