Questions tagged [interest-rate]

The proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage. The interest rate is typically determined by a combination of market forces and monetary policy.

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22 views

Bond price and interest rate [closed]

I'm much confused about the inverse relationship between the bond price and interest rate.. Please explain how it works And also explain this quotation: it it more accurate to say that a fall in bond ...
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Do students for economics study theory about no-money-economies and about no-interest-economies (ancient or futuristic)?

Do students for economics study theory about no-money-economies and about no-interest-economies (interest-free-economies), may these be ancient or futuristic? Are these terms are even being introduced ...
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Why isn't the Federal Reserve interest rate set by a published algorithm?

The Federal Reserve sets the interest rate, presumably based on a number characteristics and trends in the economy: inflation, GDP growth, population growth, unemployment, housing prices, etc. However,...
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What are the causes of negative real interest rates?

I am familiar with the real interest rates equation which states that real interest rate = nominal interest rate - expected inflation rate. What I am failing to fully grasp, however, is why would ...
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35 views

Confusion regarding the definition of inflation premium

'Inflation premium' is defined here as the higher return that investors demand in exchange for investing in a long-term security, where inflation has a greater potential to reduce the real return. In ...
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45 views

Real interest rate confusing definition

I'm currently reading "Financial Markets and Institutions" by Cornett and Saunders. On the section on interest rates, the real interest rate is defined as: A real interest rate is the ...
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Does using different Analysis Methods give the same better alternative to choose between economic projects?

Will all analysis methods (PW-FW-AW-ROR-B/C) that we can use for determining project acceptability on an economic basis gives you the correct same-alternative for the same cash-flow always?
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How to convert non-annual interest rate to annual interest rate?

If a student makes monthly deposits of 1,200 into an account with a nominal annual interest rate of 4.5% compounded monthly, will he have enough after 5 years to purchase a $105,000 property in cash? ...
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62 views

Why are so many economists critical of central banks manipulating markets and creating artificial demand?

When demand for liquidity outstrips supply (rate increase in a credit crunch) then the law of supply states that quantity supplied also increases with price (rate decrease provided demand stays ...
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120 views

Did Capitalism and Adam Smith Support a Central Bank?

Does Adam Smith and Capitalism support a Central Bank/Federal Reserve? I am trying to read through the book "Wealth of Nations" to understand. Having a central/regulatory figure dictate ...
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impact of interest rate and benefits for IMF

We know that when interest rates are high, the economy slows and inflation decreases. when interest rates are low, the economy grows, and inflation increases. Now govt wants low inflation as it has to ...
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31 views

I am given an annual interest on my money. How do I calculate how much interest I earn daily?

If an institution is giving me an interest of 7% pa and the interest will be earned daily. How do I calculate how much do I earn per day? I tried it calculate like this: ...
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24 views

What is the relationship between interest rates and stock values

I have started reading the book After the music stopped and came across a section which I couldnt quite understand. This is the following passage the fundamental determinants of stock values are ...
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33 views

What effects the time value of money

My question regards the rationale behind the Present Value computation of a single cash flow received after $n$ periods, $CF_{n}$. Most textbooks make the following statement: $$PV =\frac{CF_{n}}{(1+x)...
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36 views

On different kinds of interest rates

I am currently reading Mishkin's Money Banking and Financial Markets and would appreciate some clarification on interest rates. There are several chapters that discuss interest rates and their ...
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48 views

How are sovereign bond interest rates determined?

They are a lot of questions about the price of a bond or its yield. Why do people buy negative interest rate bonds? How did Portugal draw down their interest rates on pubic debt? ... and so on Mine ...
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51 views

How come Fed doing RRP could push short term interest rates below 0?

So there is this Reuters article, saying that the amount of cash has peaked in Fed's RRP facility, meaning that it has entered the RRP market. It also claims that this could push short term interest ...
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51 views

Comparing rates of return for different assets using $V=Pe^{rT}$

I have been playing with $V=Pe^{rT}$ and have been thinking about how to apply it to situations involving different assets growing at different rates. Suppose I had data for the historic sale prices ...
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33 views

If prices stay the same, how's lending money the same as lending real goods?

I was watching American TV. They interviewed an economist from Ivy League university. He said It's called a real interest rate because if prices stay the same, lending money is the same as lending ...
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Are there any Sovereign Debt Guarantees, apart from those issued by the US?

The US has been undertaking an irregular form of foreign aid, Sovereign Bond Guarantees, which entails guaranteeing some of the public debt of their allies, source here: https://www.cgdev.org/blog/...
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How TLT is priced?

When FED rate rise bond prices go down because people are willing to buy new bonds with higher income. But does it work the same straight way for a bond ETF, ex. TLT? If someone sells one treasury ...
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Is there an equation for compounding interest while adding to the principle amount

supposed I invested \$5000 at 10 % per annum , but at the beginning of each year I add another \$5000. So I will have (\$5000 + \$500) + \$5000 = \$10500 at the beginning of the 2nd year and compound ...
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How is it not arbitrage that EURIBOR (EUR) is around -0.5% and LIBOR (USD) is around 0.5%?

Why can I not borrow $1B of EUR at EURIBOR (pays me 50bps per year), convert it to USD (also pays me 50bps per year), lend it out at LIBOR, and collect a 1% spread? Am I missing somethign obvious? ...
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62 views

Could the Feds objectives be adjusted to decrease or at least not increase wealth inequality?

The US congress "has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates."(1) It seems ...
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55 views

Why does central banks lowering interest rate incentivize more borrowing?

I'm a layman trying to understand how the US monetary system works. I'm particularly interested in how the Federal Reserve can create inflation without printing new dollars and putting them in M1. My ...
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Is this formula correct (monthly payments for a loan over time charging compounded interest while decreasing principal)?

I'm trying to derive a formula that I can use to optimize payments for my student loans. I'm not sure if Economics.SE is the best place for this because it is pretty math based, but the problem I have ...
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What Interest Rate used to calculate opportunity cost?

What Interest Rate used to calculate opportunity cost (Calculating Future Value/Present Value)? Usually in the textbook it said that the rate used is government bonds interest rate(since it's risk ...
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Effects between price level and interest rate

I'm looking at the relationship between the price level and the interest rate in an economy. If the price level goes up, with fixed nominal money supply, the real money supply goes down, therefore, ...
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81 views

IS curve, interest rate and consumption

It is possible for the interest rate to affect the expenditure with consumption. An increase in the interest rate could, in principle, lead to increases in savings and, that way, to a decrease in ...
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52 views

Why is the Fed worried about short term interest rates going negative?

I refer to the following article: https://www.bloomberg.com/opinion/articles/2021-02-25/negative-interest-rates-could-be-trouble-unless-fed-acts, notably the following paragraph: Market observers ...
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Meaning of high bond yields [duplicate]

Lately, rising longer-maturity bond yields have been in the news. Many people write as though the rising yields show that "the market" believes that the Federal Reserve will raise interest ...
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50 views

Seemingly contradictory relationship between bond yields and economic growth?

I have a few seemingly contradictory ways of viewing the relationship between economic growth and bond yields: Reductions in FFR are largely induced by IOER. Since IOER and bonds are competing ...
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38 views

Risks asscoiated short term stimulus as interest rates approach zero

TL;DR Government interest rates are approaching zero. What are the risks to borrowing large sums in the current enviroment? Would inflation occur? Full Story I was recently reading an article about ...
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47 views

How does the treasury determine the rates of the bonds they sell?

My understanding is that price and yields are determined via supply and demand. How are the interest rates determined when the bonds are auctioned off?
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73 views

How can an economy pay for all the products it produces?

How can the totality of an economy pay for all the products it produces, if the initial amount of money in the system (before the profits on all of the products is realized) is less than the amount of ...
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New Keynesian IS curve: question about time dependence

A simple version of the new-Keynesian IS cuve is given as follows: $$ \ln Y_{t} =\ln Y_{t+1} -\frac{1}{\theta} r_t. $$ Here $r_t$ is the real interest rate and $1/\theta$ is the cross elasticity of ...
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Negative Interest Rates and Pension Funds [closed]

How do negative interest rates impact the future prospect and business model of (defined benefit) pension funds? What could be winning investment strategies for pension funds in a negative interest ...
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49 views

Is it easier to borrow money during a recession or high inflation period?

During a recession the FED applies expansionary monetary policies while during high inflation periods it contracts the money supply which respectively lowers and raises interests rates. Given that ...
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53 views

Why it is important to observe if the 10Y treasury yield moves nowadays?

in the context of low yields, where fed continues with fiscal stimulus, I've heard from many economists that this week the 10Y treasury rate has been finally increasing. In which situation is this ...
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90 views

Uses of simple interest

Recently I started to read again Brealey & Myers's "Principles of Corporate Finance" (an older edition I hold it since I attended to the university course on Economics and Corporate ...
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Dynamics of interest rates, exchange rates and bond prices within the UIP

There are already a few questions about the workings of the UIP and the exchange rate. What I have basically taken from those discussions is that one always has to distinguish between the spot rate ...
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Why did Mexico have such a high deposit rate in the 70's despite fixed exchange rate?

Why did Mexico have a high deposit rate in the 70's? Why would a bank want to pay the public such a high interest rate?
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Negative Interest Rates - incentive to lend? [duplicate]

I was reading up on negative interest rates on Investopedia, where they clamed this: The negative interest rate is meant to be an incentive for banks to make loans during a period in which they would ...
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overnight index swaps OIS

I'm writing a paper where I am using expected federal funds rates at different horizons and wanted to use the OIS as a proxy for what the market expects the FFR to be post FOMC-meetings. However, I ...
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A question regarding eurodollar futures rate

I am reading a paper, and cannot understand this part. In the second line, it is said that the pay off on this futures contract equals one minus the current annualized 3 month LIBOR rate in the ...
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Calculate dividend yield using cumulative dividend and price

I just learned basic theory of option pricing and I'm doing some exercise. There is a problem about dividend yield. Suppose we are given cross-sectional data like this: where $S$ is the price of ...
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What is the state of the art in capital theory?

In the first half of the 20th century a great deal was written about capital theory, including writers such as Hayek, Böhm-Bawerk, Sraffa, Knight, Robinson and Fisher. Many of these figures debated ...
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47 views

What is the relation between the USD Swaps Rates and US treasuries?

I understand a swap rate is the fixed leg on a IRS (source), and a swap spread is the difference between a swap rate and the interest rate of a US treasury of the same/similar maturity. (source) I ...
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How does fed cutting federal fund rate affect student loan

If fed cuts rate, it means it's cutting federal fund rate right? then why do loans like credit card and stuend loan? those aren't like Mortgage rate which the fed cuts its rate by buying MBS
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103 views

Difference between yield curve and term structure of interest rate

Can somebody please explain me the difference between yield curve and term structure of interest rate? Thanks

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