1、Interest RateChapter 4Lead-inLanguage NotesKey PointsFollow-up Tasks4.14.34.24.4CONTENTSExtended Tasks4.54.1Lead-inThis chapter will first of all introduce the time valuethe time value of money.Then it will explore the definitiondefinition of interest rate.It will also discuss how the interest rate
2、level is determined is determined.Based on these,this chapter will examine the relationships relationships among compounding and discounting.Finally,it will talk about the pricing pricing of the interest rate.￥$It is very likely that the willingness to postpone purchases into the future stems from t
3、he reward,namely the interest rate.Since the interest rate is the return on lending and the cost of borrowing,it plays a decisive role in spending,saving,borrowing,and lending decisions made in the present and bearing on the future.This concept is called the time value of money.Simply put,the intere
4、st rate represents the time value of money.Time Value of Money 4.2 Key Points4.2.1 Time Value of Money￥$It is often defined as the proportion of an amount loaned,which a lender charges an interest to the borrower,normally expressed as an annual percentage.It is the rate a bank or other lender charge
5、s to borrow its money or the rate a bank pays its savers for keeping money in an account.The annual interest rate is the rate over a period of one year.Other interest rates apply over different periods,such as a month or a day,but they are usually annualized.Interest Rate4.2 Key Points4.2.2 Definiti
6、on of the Interest Rate 4.2 Key Points4.2.3 Determination of the Level of Interest rate The governments net supply and/or demand for funds as modified by actions of the Federal Reserve Bank.（3）Three basic factors supply,demand,and government actions determine the real interest rate.The nominal inter
7、est rate,which is the rate we actually observe,is the real rate plus the expected rate of inflation.So a fourth factor affecting the interest rate is the expected rate of inflation.（4）The supply of funds from savers,primarily households.（1）The demand for funds from businesses to be used to finance i
8、nvestments in plant,equipment,and inventories(real assets or capital formation).（2）4.2 Key Points4.2.4 Compounding and Discounting Discounting:Present ValuesCompounding:Future ValuesCompounding is a method used to answer a simple question:What is the future value of money lent(or borrowed)today?Vn=V
9、0(1+i)ndiscounting is backward looking.It addresses this question:What is the present value of money to be received(or paid)in the future?V0=Vn/(1+i)n20%30%10%20%20%Lowering interest rates can give the economy a short-term boost.Short-term political gainsPeople prefer to buy goods at a later time.As
10、 a result,there will often be a positive interest rate in a free market.Delayed consumption People prefer to have their resources available in a form that can be exchanged immediately rather than a form that takes time to materialize.Liquidity preference The borrower is obliged to compensate the len
11、der for the shrinking of the moneys purchase power because of inflation.Inflation The lender will charge the borrower a risk premium so as to ensure that he will be compensated for a possible loss of money.Diverse investments 4.2 Key Points4.2.5 Pricing of the Interest RateTaxes,Banks,Economic state
12、 asset set 财产compound rate kmpand 复利default df:lt 拖欠，违约discounting dskant 折现due dju:到期的equilibrium i:kwlbrim均衡forecast f:k:st 预测，预估impetus mpts 动力offset fset 抵消option pn 选择pivotal pvtl 至关重要的premium pri:mim 保费，溢价principal prnspl 本金4.3 Language NotesI.Wordsamount repaid certificate of deposit(CD)compo
13、unding frequency delayed consumption diverse investments government actions governments budget deficit interest rate investment risks IOU 4.3 Language NotesII.Phrases liquidity preference macroeconomic operation nominal interest rate original principalphysical capitalprincipal sumpurchasing powerrea
14、l interest raterisk premiumtime valuethe U.S.Treasury 美国财政部unit of account计量单位1.An interest rate,as the amount of interest due per period,is calculated as a proportion of the amount lent,deposited or borrowed(called the principal sum).The total interest on an amount lent or borrowed depends on the p
15、rincipal sum,the interest rate,the compounding frequency,and the length of time,over which it is lent,deposited or borrowed.2.Lending in the present enables someone to spend in the future the sum of what is lent plus the interest earned.3.In normal situations,economists think that a cut in interest
16、rates will only provide a short-term impetus for the economy,which will soon be offset by inflation.4.According to the theory of time preference,people prefer to buy goods now at a later time.5.For this reason,it is natural for the lender to charge the borrower a risk premium so as to ensure that he
17、 will be compensated for a possible loss of money.4.3 Language NotesIII.Sentences 4.4 Follow-up TasksI.Matching()1.borrower A.微观运行()2.deposit B.需求下降()3.economic state C.流动性()4.inflation D.贷方()5.market economy E.借方()6.microeconomic operation F.短期()7.a downward-sloping demandG.经济状况()8.lender H.存款()9.l
18、iquidity I.市场经济()10.short run J.通货膨胀Directions:Match the English words and phrasesEnglish words and phrases in the leftleft column with the proper ChineseChinese equivalents in the rightright column.4.4 Follow-up TasksII.JudgmentsDirections:Decide whether each of the following statements is true(T)t
19、rue(T)or false(F).1.The lender will charge the borrower a high-interest rate if he thinks it is very risky for him to lend his money to the borrower.()2.If a person,who has money,wants to make a purchase,he can do nothing but wait until he saves enough money for it.()3.Interest rate can be understoo
20、d as the reward of lending or the cost of borrowing.()4.When the economy is poor,it can be made better by raising the interest rate.()5.The change of interest rates has an effect on the macroeconomic operation rather than the microeconomic operation.()4.4 Follow-up TasksIII.Short Answer Questions Di
21、rections:Answer each of the following questions brieflybriefly.1.How to measure the time value of money?2.How to calculate the total interest of a certain money lent or borrowed?3.How will the change of inflation affect that of interest rates,when other factors are held constant?4.How to manipulate
22、the interest rate to restore the balance of payments?5.What factors may lead to interest rate changes?4.4 Follow-up TasksIV.Translation Directions:Translate the following Chinese paragraph into Englishinto English.利率是指一定时期内利息额同借贷资本总额的比率。利率通常由一个国家的中央银行控制，是宏观经济调控的重要工具之一。当经济过热、通货膨胀上升时，便提高利率、收紧信贷；当过热的经济
23、和通货膨胀得到控制时，便会把利率适当地调低。当前，世界各国频繁地使用利率杠杆来实施宏观调控。利率政策已经成为各国中央银行调控货币供求，进而调控经济的主要手段。因此，利率政策在中央银行货币政策中的地位变得越来越重要。A penny saved is a penny earned.English proverbTake care of the pence,and the pounds will take care of themselves.English proverbThe Feds ability to raise and lower short-term interest rates is
24、 its primary control over the economy.Alex Berenson The act of lending usually stimulates economic activity George Soros The rate of interest acts as a link between income-value and capital-value.Irving Fisher 4.5 Extended TasksI.Proverbs and Quotes4.5 Extended TasksII.Interview ExcerptWarren Buffet
25、t is an American business magnate,investor,speaker and philanthropist.He also serves as the chairman and CEO of Berkshire Hathaway.In this interview excerpt,Buffett talks about the important role of interest rates in investment efforts.4.5 Extended TasksIII.Movie ClipThis clip shows that the American people and government are not saving,but borrowing,thus trapping themselves in a huge debt.Thanks
