清华大学 金融机构 Lecture 1 利率

When P $750, i 33.0, Bd > Bs (excess demand): P to P*, i to i*
Determinants of Asset Demand

An asset is a piece of property that is a store of value. Facing the question of whether to buy and hold an asset or whether to buy one asset rather than another, an individual must consider the following factors:

Interest Rate Fundamentals

What is interest?
Why do we care about interest rates?

They affect


Cost of external financing Consumption, investment, etc.

It’s also straight-forward to show that the value of a security (price) and yield to maturity (YTM) are negatively related. If i increases, the PV of any given cash flow is lower; hence, the price of the security must be lower.
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2.
Wealth, the total resources owned by the individual, including all assets Expected return (the return expected over the next period) on one asset relative to alternative assets
Yield to Maturity

Yield to maturity discount rate that equates today’s value (or price) of a debt instrument with the present value of all its future payments
Market Equilibrium
The equilibrium follows what we know from supplydemand analysis:

Occurs when Bd Bs, at P* 850, i* 17.6%


When P $950, i 5.3%, Bs > Bd (excess supply): P to P*, i to i*


Expected interest rate (a little tricky!) Expected inflation
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Risk (the degree of uncertainty associated with the return) on one asset relative to alternative assets Liquidity (the ease and speed with which an asset can be turned into cash) relative to alternative assets
Movements of Interest Rates
Supply and Demand for Bonds
Supply & Demand Analysis
Notice in Figure 4.1 that we use two different vertical axes—one with price, which is high-to-low starting from the top, and one with interest rates, which is low-to-high starting from the top. This just illustrates what we already know: bond prices and interest rates are inversely related.

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Present Value of a Lump Sum

Discount future payments to find the present value
PV
1 i
FVt
t
PV = present value of cash flow FVt = cash flow (lump sum) received t periods from now i = discount rate per period t = number of periods in investment horizon
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 a single cash flow or the sum of a sequence or group of cash flows.
U.S. Real and Nominal Interest Rates
Oil Prices
Supply & Demand in the Bond Market
We now turn our attention to the mechanics of interest rates. That is, we are going to examine how interest rates are determined—from a demand and supply perspective. Keep in mind that these forces act differently in different bond markets. That is, current supply/demand conditions in the corporate bond market are not necessarily the same as, say, in the mortgage market. However, because rates tend to move together, we will proceed as if there is one interest rate for the entire economy.
Financial Markets and Institutions:
Interest Rates
Preview

Interest rates are among the most closely watched variables in the economy. What exactly is meant by the phrase interest rates? We will see that a concept known as yield to maturity (YTM) is the most accurate measure of interest rates. 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.