Interest Rates, Present Value, and Future Value Flashcards
1
Q
Interest rates can be thought of in three ways
A
- Rates of return
- Discount
- Opportunity costs
2
Q
Opportunity cost
A
is the value that investors forgo by choosing a particular course
of action
3
Q
we can view an interest rate r as being composed of
A
r = Real risk-free interest rate + Inflation premium + Default risk premium +
Liquidity premium + Maturity premium
4
Q
Nominal risk-free interest
A
The sum of the real risk-free
interest rate and the inflation premium is the
