Chapter 15 Investment, Time, and Capital投资时间与资本.pptVIP

Chapter 15 Investment, Time, and Capital Markets Chapter Outline Stocks versus Flows Present Discounted Value The value of a Bond The Net Present Value Criterion for Capital Investment Decisions Adjustments for Risk Investment Decisions by Consumers Intertemporal Production Decisions— Depletable Resources How Are Interest Rates Determined? Because most of the bonds payments occur in the future, the present Discounted va1ue declines as the interest rare increases. For example, when the interest rate is 5 percent, the PDV of a 10-year bond paying $100 per year on a principal of $1000 is $l386. The effective yield is the interest rate that equates the present value of the bonds payment stream with the bonds market price. The figure shows the present value of the payment stream as a function of the interest rate. The effective yield can thus be found by drawing a horizontal line at the level of the bonds price. For example, if the price of this bond were $1000, its effective yield would be about 10 percent. If the price were $1300, the effective yield would be about 6 percent; if the price were $700, it would be 16.2 percent. The NPV of a factory is the present discounted value of all the cash flows involved in building and operating it. Here it is the PDV of the flow of future profits less the current cost of construction. The NPV declines as the interest rate increases. At interest rate R*, the NPV is zero. In (a), the price is shown rising over time. Units of a resource in the ground must earn a return commensurate with that on other assets. Therefore, in a competitive market, price less marginal production cost will rise at the rate of interest. Part (b) shows the movement up the demand curve as price rises. Market interest rates are determined by the demand and supply of loanable funds. Households supply funds in order to consume more in the future; the higher the interest rate, the m