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Finance exam notes

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Finance 315 exam 3 notes Ch5 Ch6 Concepts and terms of ch5 Early part of ch 6 (interest rate) Components of interest rates Interest Rate Required Return This rate is different from the real rate of interest, r* as a result of two factors. The first one is inflation premium, which reflects inflationary expectations The second one is risk premium (RP), which represents default risks and contractual provisions. Maturity Risk is not part of risk premium in nominal interest rates Th - is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m Nominal Interest rate – real or actual interest rate charged by the supplier of funds and paid by demander. The equation for nominal interest rate is below: R = r + IP + RP sh Term structure of interest rates - the relationship between the maturity and rate of return for bonds with similar levels of risk. Yield curve - graphic depiction of t ...
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