Chapter 5 Interest Rates

A photo of a gear, wrench, and nut and bolt set.

Learning Objectives

  1. LO1 Discuss how financial institutions quote interest rates and compute the effective annual rate on a loan or investment.

  2. LO2 Apply the time value of money equation by accounting for the compounding periods per year.

  3. LO3 Set up monthly amortization tables for consumer loans and illustrate the payment changes as the compounding or annuity period changes.

  4. LO4 Explain the real rate of interest and the effect of inflation on nominal interest rates.

  5. LO5 Summarize the two major premiums that differentiate interest rates: the default premium and the maturity premium.

  6. LO6 Understand the implications of ...

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