Chapter 5 presents the following content: Factors influencing rates, level of interest rates, real vs. nominal rates, rates of return: single period, characteristics of probability distributions, mean scenario or subjective returns, variance or dispersion of returns. | CHAPTER 5 HISTORY OF INTEREST RATES AND RISK PREMIUMS 1 HISTORY OF INTEREST RATES AND RISK PREMIUMS Determinants of the Level of Interest Rates Risk and Risk Premium The Historical Record Real Versus Nominal Risk 2 HISTORY OF INTEREST RATES AND RISK PREMIUMS Return Distributions and Value at Risk A Global View of the Historical Record Forecasts for the Long Haul 3 DETERMINANTS OF THE LEVEL OF INTEREST RATES Interest rates and forecasts of their future values are among the most important inputs into an investment decision. 4 DETERMINANTS OF THE LEVEL OF INTEREST RATES For example, suppose you have $10,000 in a savings account. The bank pays you a variable interest rate tied to some short-term reference rate such as the 30-day Treasury bill rate. You have the option of moving some or all of your money into a longer-term certificate of deposit that offers a fixed rate over the term of the .
