Understanding Interest Rates61

Preview 61

Measuring Interest Rates 61

Present Value 61

Four Types of Credit Market Instruments 63

Yield to Maturity 64

Box 1 Global: Negative T-Bill Rates? Japan Shows the Way 69

Other Measures of Interest Rates 69

Current Yield 70

Yield on a Discount Basis 71

Application Reading the Wall Street Journal: The Bond Page 72

Following the Financial News Bond Prices and Interest Rates 73

The Distinction Between Interest Rates and Returns 75

Maturity and the Volatility of Bond Returns: Interest-Rate Risk 78

Box 2 Helping Investors to Select Desired Interest-Rate Risk 79

Summary 79

The Distinction Between Real and Nominal Interest Rates 79

Box 3 With TIPS, Real Interest Rates Have Become Observable in the

United States 82

Summary, Key Terms, Questions and Problems, and Web Exercises 82

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