清华大学 金融机构 Lecture 1 利率.ppt

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.,Interest Rate Fundamentals,What is interest? Why do we care about interest rates? They affect Cost of external financing Consumption, investment, etc.,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 instruments 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.,Present Value of a Lump Sum,Discount future payments to find the present value 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 of A Series of Cash Flows,General formula CFt= cash flow received in period t it= discount rate in period t,Yield to Maturity,Yield to maturity = discount rate that equates todays value (or price) of a debt instrument with the present value of all its future payments It is considered as the most accurate measure of interest rates,Relationship Between Price and Yield to Maturity,Its 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.,Distinction Between Real and Nominal Interest Rates,Real interest rate Interest rate that is adjusted for expected changes in the price level (Fisher Equation) ir = i pe Real interest rate more accurately reflects true costs of borrowing When the real rate is low, there are greater incentives to borrow and less to lend We usually refer to this rate as the ex ante real rate of interest because it is adjusted for the expected level of inflation. After the fact, we can calculate the ex post real rate based on the observed level of inflation.,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 determinedfrom 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.,Movements of Interest Rates,Supply and Demand for Bonds,Supply & Demand Analysis,Notice in Figure 4.1 that we use two different vertical axesone 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.,Market Equilibrium,The equilibrium follows what we know from supply-demand 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* 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: 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 Expected interest rate (a little tricky!) Expected inflation 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,Expected Returns,(Nominal) expected return What we really care about is the real expected return Expected return and interest rate are not the same thing, although they may coincide sometimes. Dont get confused! How will an increase in the expected interest rate affect the expected return of a bond? An increase in the expected inflation rate?,Determinants of Asset Demand (2),The quantity demanded of an asset differs by factor. Wealth: Holding everything else constant, an increase in wealth raises the quantity demanded of an asset Expected return: An increase in an assets expected return relative to that of an alternative asset, holding everything else unchanged, raises the quantity demanded of the asset Risk: Holding everything else constant, if an assets risk rises relative to that of alternative assets, its quantity demanded will fall Liquidity: The more liquid an asset is relative to alternative assets, holding everything else unchanged, the more desirable it is, and the greater will be the quantity demanded,Factors That Shift Demand Curve (a),4-20, 2012 Pearson Prentice Hall. All rights reserved.,Factors That Shift Demand Curve (b),Factors That Shift Supply Curve,Expected Profitability of Investment Opportunities: in a business cycle expansion, the supply of bonds increases, conversely, in a recession, when there are far fewer expected profitable investment opportunities, the supply of bonds falls Expected Inflation: an increase in expected inflation causes the supply of bonds to increase Government Activities: higher government deficits increase the supply of bonds, conversely, government surpluses decrease the supply of bonds,Summary of Shifts in the Supply of Bonds,We summarize the effects in this table:,Case: Fisher Effect,Weve done the hard work. Now we turn to a special case: the Fisher Effect. Recall that rates are composed of several components: a real rate, an inflation premium, and various risk premiums. What if there is only a change in expected inflation?,Changes in pe: The Fisher Effect,If pe Relative Re , Bd shifts in to left Bs , Bs shifts out to right P , i ,Evidence on the Fisher Effect in the United States,Summary of the Fisher Effect,If expected inflation rises from 5% to 10%, the expected return on bonds relative to real assets falls and, as a result, the demand for bonds falls The rise in expected inflation also means that the real cost of borrowing has declined, causing the quantity of bonds supplied to increase When the demand for bonds falls and the quantity of bonds supplied increases, the equilibrium bond price falls Since the bond price is negatively relate