financial management
Chapter 6
Interest Rates
Learning Objectives
After reading this chapter, students should be able to:
List the various factors that influence the cost of money.
Discuss how market interest rates are affected by borrowers’ need for capital, expected inflation, different securities’ risks, and securities’ liquidity.
Explain what the yield curve is, what determines its shape, and how you can use the yield curve to help forecast future interest rates.
Chapter 6: Interest Rates
Learning Objectives 117
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Lecture Suggestions
Chapter 6 is important because it lays the groundwork for the following chapters. Additionally, students have a curiosity about interest rates, so this chapter stimulates their interest in the course.
What we cover, and the way we cover it, can be seen by scanning the slides and Integrated Case solution for Chapter 6, which appears at the end of this chapter’s solutions. For other suggestions about the lecture, please see the “Lecture Suggestions” in Chapter 2, where we describe how we conduct our classes.
DAYS ON CHAPTER: 2 OF 56 DAYS (50-minute periods)
118 Lecture Suggestions
Chapter 6: Interest Rates
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Answers to End-of-Chapter Questions
6-1
Regional mortgage rate differentials do exist, depending on supply/demand conditions in the different regions. However, relatively high rates in one region would attract capital from other regions, and the end result would be a differential
Interest Rates
Learning Objectives
After reading this chapter, students should be able to:
List the various factors that influence the cost of money.
Discuss how market interest rates are affected by borrowers’ need for capital, expected inflation, different securities’ risks, and securities’ liquidity.
Explain what the yield curve is, what determines its shape, and how you can use the yield curve to help forecast future interest rates.
Chapter 6: Interest Rates
Learning Objectives 117
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Lecture Suggestions
Chapter 6 is important because it lays the groundwork for the following chapters. Additionally, students have a curiosity about interest rates, so this chapter stimulates their interest in the course.
What we cover, and the way we cover it, can be seen by scanning the slides and Integrated Case solution for Chapter 6, which appears at the end of this chapter’s solutions. For other suggestions about the lecture, please see the “Lecture Suggestions” in Chapter 2, where we describe how we conduct our classes.
DAYS ON CHAPTER: 2 OF 56 DAYS (50-minute periods)
118 Lecture Suggestions
Chapter 6: Interest Rates
© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Answers to End-of-Chapter Questions
6-1
Regional mortgage rate differentials do exist, depending on supply/demand conditions in the different regions. However, relatively high rates in one region would attract capital from other regions, and the end result would be a differential