Introduction to Finance: Markets, Investments, and Financial Management, Fourteenth Edition

Chapter 8. Interest Rates

Chapter Learning Objectives:

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

• Describe how interest rates change in response to shifts in the supply and demand for loanable funds.

• Identify major historical movements in interest rates in the United States.

• Describe the loanable funds theory of interest rates.

• Identify the major determinants of market interest rates.

• Describe the types of marketable securities issued by the U.S. Treasury.

• Describe the ownership of Treasury securities and the maturity distribution of the federal debt.

• Explain the term or maturity structure of interest rates.

• Identify and briefly describe the three theories used to explain the term structure of interest rates.

• Identify broad historical price level changes in the United States and other economies and discuss their causes.

• Describe the various types of inflation and their causes.

• Discuss the effect of default risk premiums on the level of long-term interest rates.

Where We Have Been. . .

In Chapter 7 you learned about the savings and investment process as it takes place in the United States. The gross domestic product (GDP) and capital formation were discussed. GDP is composed of personal consumption expenditures, government purchases, gross private domestic investment, and the net export of goods and services. The historical role of savings and how financial assets and liabilities are created was covered. You should now also have a basic understanding of the federal government's source ...