# Ch 2: Interest Rates Overview

### About This Chapter

## Interest Rates Overview - Chapter Summary

What is meant by terms such as 'nominal interest rates' and 'variable interest rate'? How do you calculate effective annual rate and the time value of money? What causes changes in bond yields? These are just a few examples of the type of questions that are addressed in this chapter's video and text lessons. Expert instructors guide you through each lesson, supplying definitions and examples to clarify this information. This chapter offers self-paced study through 24/7 accessibility, and you can measure what you have learned by taking brief self-assessment quizzes as you move through each lesson. Once you have finished this chapter, you should be able to:

- Define 'interest rate' and explain how these rates are determined
- Differentiate between real and nominal interest rates
- Explain how rates are determined for private investment loans
- Solve interest problems
- Apply compounding interest and simple interest rate formulas
- Compare variable and fixed rate loans
- Discuss details about term structure of interest rates
- Calculate yield to maturity for investments
- List differences between short- and long-term securities

### 1. What is Interest Rate? - Definition, Types & History

Everything costs money, even money. In this lesson, you'll learn about interest rates - specifically, what they are, how they are determined, and what they mean for an individual and an economy.

### 2. Real vs. Nominal Interest Rates and Changes in Prices

This lesson explains the important difference between nominal and real interest rates and provides examples of how to use the Fisher equation to adjust nominal rates for inflation.

### 3. Private Investment and Real Interest Rates

When you borrow money, where does that money come from and why is it available? In this lesson, you'll learn about the market for loanable funds, where savers deposit money and entrepreneurs borrow money to finance private investment.

### 4. Effective Annual Rate: Formula & Calculations

After watching this video lesson, you will understand how the interest rate that financial institutions, such as credit card companies, give you work. Also, learn how this interest rate may be different than the one you actually end up with.

### 5. How to Solve Interest Problems: Steps & Examples

If you want to know how your money can earn money, then it's essential to learn about solving interest problems. In this lesson, we'll practice calculating interest amounts and interest rates.

### 6. Compounding Interest Formulas: Calculations & Examples

Compound interest is a great way to have your money work for you. In this lesson, find out the formula for calculating compound interest and practice using the formula with several examples.

### 7. How to Find Simple Interest Rate: Definition, Formula & Examples

When we borrow a certain sum of money over a period of time, we agree that we will pay it back, along with a fee, known as the interest owed. Similarly, when we invest a sum of money in a savings account, the account earns us interest. This lesson will show you how to calculate a certain type of interest called simple interest.

### 8. Comparing Variable & Fixed Interest Rate Loans

Most people, at some point in their lives, will experience the process of getting a loan - perhaps for a house, car, education or something else. This lesson will describe the difference between the two types of interest rates commonly offered.

### 9. Term Structure of Interest Rates: Definition & Overview

In this lesson, you will learn the definition of the term structure of interest rates and its related concepts. The behavior of this fundamental benchmark of interest rate is followed by all the economic agents in the setting of the macro economy.

### 10. Present and Future Value: Calculating the Time Value of Money

A central concept in business and finance is the time value of money. We will use easy to follow examples and calculate the present and future value of both sums of money and annuities.

### 11. How to Calculate Yield to Maturity: Definition, Equation & Example

In this lesson, you will learn what yield to maturity is, discover the formula for calculating it, and see some examples of how the formula works and what it reveals about investments.

### 12. Determinants of Bond Yields

While bonds are sold with a stated interest rate, there is more to the return than just the coupon rate. Let's look at what bond yields are along with what causes the yield to change and how a yield curve aids in bond investment evaluation.

### 13. Short-Term & Long-Term Securities

In this lesson, you will learn about short- and long-term securities, their definitions, requirements, and how to differentiate between them. We will also discuss the yield curve for short and long-term securities.

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### Other Chapters

Other chapters within the TECEP Financial Institutions & Markets: Practice & Test Prep course

- Financial Markets & Financial Instruments
- Financial Market Analysis & Trading
- Banks & Other Financial Intermediaries
- The Flow of Funds in Financial Intermediaries
- Regulation of Financial Institutions
- Introduction to International Finance
- Introduction to the Mortgage Market
- Futures & Options
- Branch Banking & Deposit Insurance
- Money & Interest-Rate Relationships
- Inflation & Income Policies
- TECEP Financial Institutions & Markets Flashcards