Money and Banking

The Meaning of Interest Rates

 Interest Rates
• 接下來三個主題是關於利率
– The meaning of interest rates – 利率的觀念
– The behavior of interest rates – 利率的決定與變化
– The risk and term structure of interest rates – 各種
利率之間的關聯性

2024/3/5 The Meaning of Interest Rates 2

 Beggar Thy Neighbor
• Deuteronomy 23:18
– “You shall not charge interest on loans to your
brother, interest on money, interest on food,
interest on anything that is lent for interest.”
• Charging interest on loans, especially
compound interest, was prohibited since the
Romans.
• Still prohibited in the Islamic world today.
– Islamic Banking
2024/3/5 The Meaning of Interest Rates 3
 The Interest Rate
• Why do lenders charge interest on loans?
– Compensation for inflation
– Compensation for the opportunity cost of waiting
to spend money
– Compensation for default risk

2024/3/5 The Meaning of Interest Rates 4

 The Interest Rate
• The importance of interest rate
– Most financial transactions involve payments in
the future
– The interest rate provides a link between the
financial present and the financial future

2024/3/5 The Meaning of Interest Rates 5

 舉例
• 假設你現在身上有1000塊，小華跟小明兩
個人同時想跟你借這1000塊。
– 小華：馬上還你1050塊
– 小明：馬上還你1060塊
• 這種立即完成的交易，借給誰比較好，很容易判斷。
• 但是金融交易的特點是包含「現在」跟
「以後」
– 小華：5天後還你1050塊
– 小明：6天後還你1060塊
• 這時，怎麼判斷借給誰比較好？
2024/3/5 The Meaning of Interest Rates 6
 Future Value and Compound Interest
• Future value is the value on some future date
of an investment made today.
– 100 invested today at 5% interest gives 105 in a
year. So the future value of 100 today at 5%
interest is 105 one year from now.
– The 100 yields 5, which is why interest rate is also
called yield.

2024/3/5 The Meaning of Interest Rates 7

 Future Value and Compound Interest
• If the present value is 100 and the interest
rate is 5%, then the future value one year
from now is
$100 + $100(0.05) = $105
• In general
FV = PV + PV (i) = PV (1 + i)
– The higher the interest rate or the higher the
amount invested, the higher the future value.

2024/3/5 The Meaning of Interest Rates 8

 Future Value and Compound Interest
• What if you leave your 100 in the bank for two
years at 5% yearly interest rate?
100 + 100  (0.05) + 100  (0.05) + 5  (0.05)
= 100 + 5 + 5 + 0.25
= 110.25
= 100  (1 + 0.05)2

• In general
FVn = PV (1 + i)n
2024/3/5 The Meaning of Interest Rates 9
 Present Value and Discounting
• Present value: the value today of funds that
will be received in the future.
• Discounting: the process of finding the
present value of funds that will be received in
the future.
Compounding: PV (1 + i)n = FVn
FVn
Discounting: PV =
(1 + i)n

2024/3/5 The Meaning of Interest Rates 10

 Present Value and Discounting
• Important points about Discounting
– The further in the future a payment is to be
received, the smaller its present value.
– The higher the interest rate used to discount
future payments, the smaller the present value of
the payments.
– The present value of a series of future payment is
simply the sum of the discounted value of each
individual payment.

2024/3/5 The Meaning of Interest Rates 11

 Present Value of $100

2024/3/5 The Meaning of Interest Rates 12

 Present Value of a Series of Payments
• Suppose you will receive $50,000 immediately,
and $50,000 each year for four additional
years. The present value of this series of
payments, assuming a 10 percent interest rate,
is:
$50,000 $50,000 $50,000 $50,000
$50,000 + + + +
(1+ 0.10) (1 + 0.10) (1 + 0.10) (1 + 0.10)4
2 3

= $208,493

2024/3/5 The Meaning of Interest Rates 13

 關於複利
• 首先注意，所有你看到、聽到的利率，都
是指「年」利率。
– 所以課本的例子，都是以年作單位，各種借款
都是一年算一次利息，複利是以年作單位在利
上加利，這樣計算上很簡單。
– 但實際上，我也可以要求，一個月算一次利息，
或甚至一天算一次利息，但是這個借款的利率
仍然是年利率，那這時怎麼算？

2024/3/5 The Meaning of Interest Rates 14

 關於複利
• 利率10%，借一年，一年複利一次
– 100 x (1 + 0.1) = 110
• 利率10%，借一年，半年複利一次
– 100 x (1 + (0.1/2))2 = 110.25
• 利率10%，借一年，一個月複利一次
– 100 x (1 + (0.1/12))12 = 110.47
• 利率10%，借一年，一天複利一次
– 100 x (1 + (0.1/365))365 = 110.52

2024/3/5 The Meaning of Interest Rates 15

 關於複利
• 公式：借款 A，年利率 r ，借 n 年，每年複
利 m 次，最後要還

2024/3/5 The Meaning of Interest Rates 16

 Debt Instruments
• Basic types of debt instruments
– Simple loan
– Discount bond
– Fixed-payment loan
– Coupon bond

2024/3/5 The Meaning of Interest Rates 17

 Simple Loan
Simple loan A debt instrument in which the borrower receives from the lender an
amount called the principal and agrees to repay the lender the principal plus interest
on a specific date when the loan matures.

After one year, Nate’s would repay the principal plus interest: 10,000 + (10,000 ×
0.10), or 11,000.

2024/3/5 The Meaning of Interest Rates 18

 Fixed Payment Loan
Fixed-payment loan A debt instrument that requires the borrower to make regular
periodic payments of principal and interest to the lender.

For example, if you are repaying a 10,000 10-year student loan with a 9% interest rate,
your monthly payment is approximately 127. The time line of payments is:

2024/3/5 The Meaning of Interest Rates 19

 Discount Bond
Discount bond A debt instrument in which the borrower repays the amount of the
loan in a single payment at maturity but receives less than the face value of the bond
initially.

The lender receives interest of $10,000 - $9,091 = $909 for the year. Therefore, the
interest rate is $909/$9,091 = 0.10, or 10%.

2024/3/5 The Meaning of Interest Rates 20

 Coupon Bonds
• Coupon bond
– A debt instrument that requires multiple
payments of interest on a regular basis, and a
payment of the face value at maturity.

2024/3/5 The Meaning of Interest Rates 21

 Coupon Bonds
• Terminology of coupon bonds
– Face value（面額）, or par value, is the amount
to be repaid by the bond issuer at maturity
– Coupon（息票） is the periodic fixed dollar
amount of interest paid by the issuer to the buyer
– Coupon rate（息票利率，或票面利率） is the
value of the coupon expressed as a percentage of
the face value of the bond
– Maturity（到期日） is the length of the time
before the bond expires

2024/3/5 The Meaning of Interest Rates 22

 Coupon Bond

2024/3/5 The Meaning of Interest Rates 23

 Coupon Bond

For example, if IBM issued a $1,000 30-year bond with a coupon rate of 10%, it would
pay $100 per year for 30 years and a final payment of $1,000 at the end of 30 years.
The timeline on the IBM coupon bond is:

2024/3/5 The Meaning of Interest Rates 24

 Bond Pricing
• 一張債券上，已經把未來付款的時間與金
額講好了，不會改變。
– 所以債券又叫做「固定收益證券」（fixed-
income security）
• 那麼你現在願意用多少錢購買這張債券，
亦即，你願意用多少現在的錢，來換取這
張債券所承諾的未來付款？

2024/3/5 The Meaning of Interest Rates 25

 Bond Pricing
• The price of a bond is the present value of its
future payments
– Present value of coupon bond = present value of
yearly coupon payments + present value of the
principal payment

 C C C  F
PCB =  + 2 + + n +
 1+ i (1+ i ) (1+ i )  (1+ i )n

2024/3/5 The Meaning of Interest Rates 26

 Bond Pricing
• The price of a bond and the interest rate are
inversely related: higher interest rate gives
lower bond price.
– 債券的價格等於未來付款的現值，利率越高，
未來付款的現值越低，所以債券的價格越低。

2024/3/5 The Meaning of Interest Rates 27

 Bond Yield
• 但是，怎麼知道用來計算現值的利率該是
多少？

 C C C F
PCB =  + 2 + + n +
 1+ i (1+ i ) ( )  ( ) n
1+ i 1+ i

2024/3/5 The Meaning of Interest Rates 28

 Bond Yield
• 其實，債券的價格，跟蘋果的價格一樣，
是由市場上的需求與供給來決定。
• 對於一張債券所承諾的未來付款，如果很
多人想要，價格就會上升；想要的人少，
價格就會下跌。
– 賣的人多，價格下跌；賣的人少，價格上升。
• 所以價格是市場決定的，觀察到這個價格
之後，我們再推算出這張債券的利率。

2024/3/5 The Meaning of Interest Rates 29

 Bond Yield
• Yield to maturity (到期殖利率，或簡稱殖利
率)：The interest rate that makes the present
value of the payments from an asset equal to
the asset’s price today.
• 讓債券(或任何資產)的未來付款的總現值等
於今天的價格的那個利率

2024/3/5 The Meaning of Interest Rates 30

 Yield To Maturity

2024/3/5 The Meaning of Interest Rates 31

 Yield To Maturity

2024/3/5 The Meaning of Interest Rates 32

 Yield To Maturity

2024/3/5 The Meaning of Interest Rates 33

 關於Fixed-Payment Loans
• 這127怎麼得到的？
For example, if you are repaying a 10,000 10-year student loan with a 9% interest rate,
your monthly payment is approximately 127. The time line of payments is:

2024/3/5 The Meaning of Interest Rates 34

 上次的例子
• 就是讓所有未來每一期的相同付款的總現
值，在利率9%之下，等於今天借到的10000。
– 但是要注意這裡是每月付款一次。

x x x x x
10000 = + + + + +
0.09 0.09 2 0.09 3 0.09 4 0.09 120
(1 + ) (1 + ) (1 + ) (1 + ) (1 + )
12 12 12 12 12

• 解x，x = 127 是近似值，加起來是10025.6。

2024/3/5 The Meaning of Interest Rates 35

 Yields to Maturity on a 10%-Coupon-Rate Bond
Maturing in Ten Years (Face Value = $1,000)

• The price of a coupon bond and the yield to maturity

are negatively related
• When the coupon bond is priced at its face value, the
yield to maturity equals the coupon rate
• The yield to maturity is greater (less) than the
coupon rate when the bond price is below (above) its
face value
2024/3/5 The Meaning of Interest Rates 36
 Yield and Coupon Rate
• 假設有人跟你借錢，承諾說，明年會還你
1000元，加上利息100元。這個借款的利率
是多少？
• 你如果回答，100/1000 = 10%，這個答案是
票面利率，不是這個借款的真正利率。
– 為什麼不是真正的利率？因為到目前為止的資
訊只告訴你將來他會還多少錢，還沒有講，現
在他到底跟你借了多少錢。

2024/3/5 The Meaning of Interest Rates 37

 Yield and Coupon Rate
• 如果你是借他900元，那其實明年拿回來的
1100元中，有200元是利息，所以利率應該
是200/900 = 22.2%。
– 根據殖利率的公式
1100 1100 1100 − 900 200
900 = 1+ i = i= = = 22.2%
1+i 900 900 900

– 所以在債券價格(你借給他的錢)低於債券面額
的時候，殖利率(真正的利率)會高於票面利率。

2024/3/5 The Meaning of Interest Rates 38

 Yield and Coupon Rate
• 如果你是借他1050元，則拿回來的1100元
中，只有50元是利息，所以利率該是
50/1050 = 4.76%
– 根據殖利率公式
1100 1100 1100 − 1050 50
1050 = 1+ i = i= = = 4.76%
1+i 1050 1050 1050

– 所以在債券價格(你借給他的錢)高於債券面額
的時候，殖利率(真正的利率)會低於票面利率。

2024/3/5 The Meaning of Interest Rates 39

 Current Yield
• Current yield (當期殖利率) is the measure of
the proceeds the bondholder receives for
making a loan.
Coupon Payment
Current Yield =
Price Paid
C
=
P

2024/3/5 The Meaning of Interest Rates 40

 Special Bonds
• Discount bond (zero-coupon bond)
– Coupon rate = 0%
• Perpetuity (consol bond)
– A bond with no maturity date

C C C C
P= + + + +
1 + ic (1 + ic ) (1 + ic ) (1 + ic )
2 3 4

2024/3/5 The Meaning of Interest Rates 41

 Special Bonds
• The yield of a consol bond is the same as its
current yield.
– Current yield was used as an approximation for yield to
maturity, and the approximation is exact when maturity
equals infinity.
C C C C
P= + + + +
1 + ic (1 + ic )2 (1 + ic )3 (1 + ic )4
C C C C
(1 + ic )P = C + + + + +
1 + ic (1 + ic ) (1 + ic ) (1 + ic )
2 3 4

(1 + ic )P − P = C
C
ic =
P
2024/3/5 The Meaning of Interest Rates 42
 債券市場資訊
• 櫃檯買賣中心債券市場資訊
– http://www.tpex.org.tw/web/bond/index.php?l=z
h-tw
– 等殖交易系統

2024/3/5 The Meaning of Interest Rates 43

 債券市場資訊

2024/3/5 The Meaning of Interest Rates 44

 債券市場資訊

2024/3/5 The Meaning of Interest Rates 45

 等殖交易系統

2024/3/5 The Meaning of Interest Rates 46

 Rate of Returns
• 報酬率的計算方式

毛報酬率 這筆投資結束時，所有拿回來的錢
=
Gross RoR 開始時為這筆投資所投入的錢

淨報酬率 毛報酬率 - 1
=
Net RoR Gross RoR
這筆投資所賺到的錢
=
開始時為這筆投資所投入的錢

2024/3/5 The Meaning of Interest Rates 47

 Rate of Returns
The payments to the owner plus the change in value 注意：課本這
expressed as a fraction of the purchase price 裡算的是你的
P -P 投資期間為一
C
RET = + t+1 t 期的報酬率，
Pt Pt 就是 t 期時購
RET = return from holding the bond from time t to time t + 1 買，t+1 期就
Pt = price of bond at time t 賣掉。

Pt+1 = price of the bond at time t + 1

C = coupon payment
C
= current yield = ic
Pt
Pt+1 - Pt
= rate of capital gain = g
Pt

2024/3/5 The Meaning of Interest Rates 48

 Rate of Returns
• 在報酬率RET的公式中，Pt+1是未知數，就是
你賣債券時能賣多少錢，目前還不知道。
• 所以買一張債券的報酬率，和這張債券的
殖利率，一般不會相同。
• 只有在投資期間等於債券到期日的情況下，
報酬率才可能等於殖利率
– The return equals the yield to maturity only if the
holding period equals the time to maturity

2024/3/5 The Meaning of Interest Rates 49

 Rate of Returns
• 如果你的投資期間是一期，而你買的債券
是下一期就到期，則Pt+1 = F，是個已知的數
值，沒有不確定性。
C + Pt +1 − Pt C + F
RET = = −1
Pt Pt
C +F C +F C +F
Pt = 1+ i = i= −1
1+i Pt Pt

2024/3/5 The Meaning of Interest Rates 50

 Rate of Returns
• 但是如果你的投資期間是2期，那在t期購買
(t+2)期到期的債券，報酬率會等於殖利率嗎？
• 不一定會，因為報酬率會牽涉到你在(t+1)期
拿到的coupon payment，C，的「再投資」
收入，而這個再投資收入，現在不曉得會
是多少。
– 如果這些利息的再投資可以賺取與殖利率相同
的報酬率，殖利率才會等於報酬率。

2024/3/5 The Meaning of Interest Rates 51

 Interest Rate Risk
• 根據報酬率的計算方式，如果Pt+1變動，則
報酬率也跟著改變。 Pt+1上升，報酬率上升，
Pt+1下跌，報酬率也下跌。
• 但Pt+1下跌就表示(t+1)期的利率上升，也就
是說，當你買了一張債券之後，如果利率
上升，你的報酬率就會下降，因為你這張
債券的價格會下跌。
• 這個叫做投資債券的「利率風險」(interest
rate risk)
2024/3/5 The Meaning of Interest Rates 52
 Interest Rate Risk
• 1張5年期的債券，面額1000，票面利率10%，殖
利率也是10%:
100 100 100 100 100 + 1000
P = 1000 = + 2
+ 3
+ 4
+
1.1 (1.1) (1.1) (1.1) (1.1)5

• 假設你買了這張債券之後，利率馬上上升到11%，
這張債券的價格會變成
100 100 100 100 100 + 1000
P = 963.04 = + 2
+ 3
+ 4
+
1.11 (1.11) (1.11) (1.11) (1.11)5
• 價格變動了 963.04 − 1000
= −0.03696 = −3.7%
1000
2024/3/5 The Meaning of Interest Rates 53
 Interest Rate Risk
• 1張2年期的債券，面額1000，票面利率10%，殖
利率也是10%:
100 100 + 1000
P = 1000 = +
1.1 (1.1)2
• 如果利率馬上上升到11%，這張債券的價格變成
100 100 + 1000
P = 982.87 = +
1.11 (1.11)2
• 價格變動了
982.87 − 1000
= −0.017 = −1.7%
1000

2024/3/5 The Meaning of Interest Rates 54

 Interest Rate Risk
• 所以當利率變動時
– 你持有的債券的價格會變化
– 債券的天期越長，價格變化的幅度越大
 C C C  F
P= + + + n 
+
1 + i (1 + i ) ( )  ( )
+ +
2 n
1 i 1 i

2024/3/5 The Meaning of Interest Rates 55

 Nominal and Real Interest Rates
• Nominal interest rate
– An interest rate that is not adjusted for changes in
purchasing power.
• Real interest rate
– An interest rate that is adjusted for changes in
purchasing poser.

2024/3/5 The Meaning of Interest Rates 56

 Nominal and Real Interest Rates
• Real interest rate
– Inflation causes the purchasing power of both the
interest income and the principal to decline.
– Because lenders and borrowers don’t know what the
actual real interest rate will be during the period of a
loan, they must estimate an expected real interest rate.
– The expected real interest rate, r, equals the nominal
interest rate, i, minus the expected rate of inflation, 𝜋 𝑒 .

r = i − πe

2024/3/5 The Meaning of Interest Rates 57

 Nominal and Real Interest Rates

2024/3/5 The Meaning of Interest Rates 58

 Nominal and Real Interest Rates

2024/3/5 The Meaning of Interest Rates 59

 解釋Table 3.3
• 假設現在你有100元，一個包子10元，你可以吃到
10個包子。
• 現在有人跟你借這100元1年，你應該跟他收多少
的利率？
• 你預期物價在未來1年會上升10%，所以1個包子
在1年後的價格是11元，而你至少要能吃到10個包
子。所以你要求10%的利率，要對方1年後還你
110元。
• 在這個例子裡，nominal interest rate是10%，而
expected inflation rate是10%。而real interest rate為
0%。
2024/3/5 The Meaning of Interest Rates 60
 解釋Table 3.3
• 但是如果事實上，這1年間物價上升了20%，即實
際的inflation rate超過了expected inflation rate。
• 這時1個包子要價12元，你拿回來的110元，只能
買到9.17個包子，所以你(lender)就遭受了損失。
– 這個借款的實質利率為負的10%
• 但是對borrower而言，當初跟你借到的錢可以吃
到10個包子，現在只要付出相當於9.17個包子就
可以還清債務，所以對borrower是有利的。

2024/3/5 The Meaning of Interest Rates 61

 解釋Table 3.3
• 但是如果，這1年間物價只上升了5%，即實際的
inflation rate低於expected inflation rate。
• 這時1個包子要價10.5元，你拿回來的110元，可
以買到10.48個包子，所以你(lender)就獲利了。
– 這個借款的實質利率是5%
• 相反地對borrower來說，去年借的錢吃到10個包
子，現在卻必須付出10.48個包子來還債，所以對
borrower是不利的。

2024/3/5 The Meaning of Interest Rates 62