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Ch 2: Interest Rates Overview

About This Chapter

Use this detailed chapter to better understand information about interest rate types, formulas and calculations. These lessons can be used to supplement your finance class studies, study for tests for prepare for college proficiency exams addressing this subject.

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

13 Lessons in Chapter 2: Interest Rates Overview
Test your knowledge with a 30-question chapter practice test
What is Interest Rate? - Definition, Types & History

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.

Real vs. Nominal Interest Rates and Changes in Prices

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.

Private Investment and Real Interest Rates

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.

Effective Annual Rate: Formula & Calculations

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.

How to Solve Interest Problems: Steps & Examples

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.

Compounding Interest Formulas: Calculations & Examples

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.

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

Comparing Variable & Fixed Interest Rate Loans

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.

Term Structure of Interest Rates: Definition & Overview

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.

Present and Future Value: Calculating the Time Value of Money

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.

How to Calculate Yield to Maturity: Definition, Equation & Example

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.

Determinants of Bond Yields

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.

Short-Term & Long-Term Securities

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.

Chapter Practice Exam
Test your knowledge of this chapter with a 30 question practice chapter exam.
Not Taken
Practice Final Exam
Test your knowledge of the entire course with a 50 question practice final exam.
Not Taken

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