McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Chapter 4
Interest Rates and Present
Value
McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Chapter Outline
•Interest Rates
•Present Value
McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Interest Rates
The Market for Money
McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Interest Rate
•The interest rate is the percentage,
usually expressed in annual terms, of a
balance that is paid by a borrower to a
lender that is in addition to the original
amount borrowed or lent.
McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.
Figure 1 The Market for
Money
Supply
Demand
r*
$*
Interest
rate (r)
Money ($)
Borrowed/Saved