FI M02 C3 金融机构.pptVIP

Part Two Fundamentals of Financial Markets Chapter 3 What Do Interest Rates Mean and What Is Their Role in Valuation? Chapter Preview Interest rates are among the most closely watched variables in the economy. It is imperative that what exactly is meant by the phrase interest rates is understood. In this chapter, we will see that a concept known as yield to maturity (YTM) is the most accurate measure of interest rates. Chapter Preview Any description of interest rates entails an understanding certain vernacular and definitions, most of which will not only pertain directly to interest rates but will also be vital to understanding many other foundational concepts presented later in the text. Chapter Preview So, in this chapter, we will develop a better understanding of interest rates. We examine the terminology and calculation of various rates, and we show the importance of these rates in our lives and the general economy. Topics include: Measuring Interest Rates The Distinction Between Real and Nominal Interest Rates The Distinction Between Interest Rates and Returns Present Value Introduction Different debt instruments have very different streams of cash payments to the holder (known as cash flows), with very different timing. All else being equal, debt instruments are evaluated against one another based on the amount of each cash flow and the timing of each cash flow. This evaluation, where the analysis of the amount and timing of a debt instrument’s cash flows lead to its yield to maturity or interest rate, is called present value analysis. Present Value The concept of present value (or present discounted value) is based on the commonsense notion that a dollar of cash flow paid to you one year from now is less valuable to you than a dollar paid to you today. This notion is true because you could invest the dollar in a savings account that earns interest and have more than a dollar in one year. The term present value (PV) can be extended to mean the PV of