2/19 lecture

Question 1

interest is

Answer 1

a charge for borrowed money

Question 2

interest rate is

Answer 2

the annual charge as a percentage of the borrowed amount

Question 3

yield is

Answer 3

the promised interest rate associated with an investment

Question 4

return is

Answer 4

the actually realized interest rate associated with an investment

Question 5

how is interest rate relevant to macroeconomics

Answer 5

markets care because all modern economies rely on debt to finance economic opportunity

Question 6

what is one of the Feds main tools to influence the broader economy

Answer 6

raising/lowering interest rates

Question 7

zinseszins is

Answer 7

compound interest

Question 8

what is compound interest

Answer 8

interest is not only earned on the initial deposit, but on previsouly accumulated intrest as well

Question 9

what is APR

Answer 9

rates you pay for borrowing

Question 10

administrative is

Answer 10

rates governments set

Question 11

amrket rates are set by

Answer 11

supply and demand

Question 12

intra year compiunding

Answer 12

is compounding but at different rates, such as monthyly or quarterly

Question 13

APY is the

Answer 13

annual rate you receive depending on the compounding

Question 14

under intra year compounding, does the original interest rate capture what is actually earned over the course of the year

Answer 14

no. The higher the comp. Frequency, the higher the APY and thus the higher the future value FV.

Question 15

what does APR capture

Answer 15

actual interest rate borrowers pay on their borrowing

Question 16

is APR or APY higher

Answer 16

APR

Question 17

what is liquidity

Answer 17

the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.

Question 18

what is interest on reserves

Answer 18

the ratio paid by the Fed to banks who hold reserves

Question 19

what is discount rates

Answer 19

the rate paid by banks for loans from fed

Question 20

makret rates are determined by

Answer 20

the market

Question 21

Fed funds rate are

Answer 21

the rate paid on overnight loans between banks

Question 22

US treasury rates are

Answer 22

the rates paid by the US government on its debt

Question 23

commercial loan rates are

Answer 23

the rate paid by furms to finance ther operations

Question 24

mortgage rates

Answer 24

the rate paid by households to finance real estate

Question 25

prime rate is

Answer 25

a base rate used by banks to price other loans

Question 26

what happens to market rates when Feds change administrative rates

Answer 26

they change (everyone pays attention to Feds)

Question 27

maturity on yield curve is

Answer 27

point in time when a debt instruments final payment is due

Question 28

yield curve is

Answer 28

annualized US treasury yields as a function of their maturity

Question 29

long term rates are

Answer 29

long term rates that can be thought of as an average across expected future short term rates

Question 30

real interest rate

Answer 30

turns any dollar-saved today into purchasing power adjusted number of dollars in the future

Question 31

what is nominal interest rate

Answer 31

money interest rate turns any dollar saved today into a predetermined number of dollars in the future

Question 32

unlike nominal interest rate, real interest rate is not predetermined, why?

Answer 32

because you can not predict inflation (even the Feds cant)

Question 33

what do interest rates play a crucial role in determining

Answer 33

observed allocations both at the micro and macroeconomic level

Question 34

insights when saving in regards to interest rates

Answer 34

1) appreciate the power of compounding
2)consider both nominal and real interest rates
3)keep part of your wealth accessible by way of high-yield savings or money market accounts