金融市场4behaviour of interest rate

Slide4-1UNDERSTANDINGINTERESTRATESChapter3BEHAVIOROFINTERESTRATESChapter4THERISKANDTERMSTRUCTUREOFINTERESTRATESChapter5THETHEORYOFEFFICIENTCAPITALMARKETSChapter6PartIIPrinciplesofFinancialMarketsSchoolofManagementinHUSTSlide4-2ChapterFourBEHAVIOROFINTERESTRATESPartIIPrinciplesofFinancialMarketsSchoolofManagementinHUSTSlide4-3ChapterOutlineDeterminantsofAssetDemandLoanableFundsFramework:SupplyandDemandintheBondMarketLiquidityPreferenceFramework:SupplyandDemandintheMarketforMoneySchoolofManagementinHUSTSlide4-4DeterminantsofAssetDemandSchoolofManagementinHUSTSlide4-5ExpectedReturnExample:WhatistheexpectedreturnontheMobilOilbondifthereturnis12%two-thirdsofthetimeand8%one–thirdofthetime?%68.103108.03212.02211=×+×=+=RETpRETpRETeIngeneral∑==niiiPRR1SchoolofManagementinHUSTSlide4-6Theexpectedreturn,forStockBWis.09or9%HowtoDeterminetheExpectedReturnStockBWRiPi(Ri)(Pi)-.15.10-.015-.03.20-.006.09.40.036.21.20.042.33.10.033Sum1.00.090StockBWRiPi(Ri)(Pi)-.15.10-.015-.03.20-.006.09.40.036.21.20.042.33.10.033Sum1.00.090SchoolofManagementinHUSTSlide4-7DeterminingStandardDeviation(RiskMeasure)StandardDeviation,σ,isastatisticalmeasureofthevariabilityofadistributionarounditsmean.Note,thisisforadiscretedistribution.StandardDeviation,σ,isastatisticalmeasureofthevariabilityofadistributionarounditsmean.Note,thisisforadiscretedistribution.∑=-=niiiPRR12)()(σSchoolofManagementinHUSTSlide4-8HowtoDeterminetheExpectedReturnandStandardDeviationStockBWRiPi(Ri)(Pi)(Ri-R)2(Pi)-.15.10-.015.00576-.03.20-.006.00288.09.40.036.00000.21.20.042.00288.33.10.033.00576Sum1.00.090.01728StockBWRiPi(Ri)(Pi)(Ri-R)2(Pi)-.15.10-.015.00576-.03.20-.006.00288.09.40.036.00000.21.20.042.00288.33.10.033.00576Sum1.00.090.01728SchoolofManagementinHUSTSlide4-9DeterminingStandardDeviation(RiskMeasure)σ=Σ(Ri-R)2(Pi)σ=.01728σ=.1315or13.15%σ=Σ(Ri-R)2(Pi)σ=.01728σ=.1315or13.15%ni=1SchoolofManagementinHUSTSlide4-10RiskAttitudeExampleYouhavethechoicebetween(1)aguaranteeddollarrewardor(2)acoin-flipgambleof$100,000(50%chance)or$0(50%chance).Theexpectedvalueofthegambleis$50,000.Maryrequiresaguaranteed$25,000,ormore,tocalloffthegamble.Raleighisjustashappytotake$50,000ortaketheriskygamble.Shannonrequiresatleast$52,000tocalloffthegamble.SchoolofManagementinHUSTSlide4-11CertaintyEquivalent()istheamountofcashsomeonewouldrequirewithcertaintyatapointintimetomaketheindividualindifferentbetweenthatcertainamountandanamountexpectedtobereceivedwithriskatthesamepointintime.CertaintyEquivalent()istheamountofcashsomeonewouldrequirewithcertaintyatapointintimetomaketheindividualindifferentbetweenthatcertainamountandanamountexpectedtobereceivedwithriskatthesamepointintime.RiskAttitudesSchoolofManagementinHUSTSlide4-12WhataretheRiskAttitudetendenciesofeach?RiskAttitudeExampleMaryshows“riskaversion”becauseher“certaintyequivalent”theexpectedvalueofthegamble.Raleighexhibits“riskindifference”becauseher“certaintyequivalent”equalstheexpectedvalueofthegamble.Shannonrevealsa“riskpreference”becauseher“certaintyequivalent”theexpectedvalueofthegamble.Maryshows“riskaversion”becauseher“certaintyequivalent”theexpectedvalueofthegamble.Raleighexhibits“riskindifference”becauseher“certaintyequivalent”equalstheexpectedvalueofthegamble.Shannonrevealsa“riskpreference”becauseher“certaintyequivalent”theexpectedvalueofthegamble.SchoolofManagementinHUSTSlide4-13CertaintyequivalentExpectedvalueRiskPreferenceCertaintyequivalent=ExpectedvalueRiskIndifferenceCertaintyequivalentExpectedvalueRiskAversionMostindividualsareRiskAverse.CertaintyequivalentExpectedvalueRiskPreferenceCertaintyequivalent=ExpectedvalueRiskIndifferenceCertaintyequivalentExpectedvalueRiskAversionMostindividualsareRiskAverse.RiskAttitudesSchoolofManagementinHUSTSlide4-14BenefitsofDiversification1.Diversificationalmostalwaysbeneficialtorisk-averseinvestor2.Lessreturnsofsecuritiesmovetogether,greaterisriskreductionfromdiversificationSchoolofManagementinHUSTSlide4-15Whatdeterminesthelevelofinterestrates?LoanableFundsTheoryAtheoryofinterestratedeterminationthatviewsequilibriuminterestratesinfinancialmarketsasaresultofthesupplyanddemandforloanablefundsSchoolofManagementinHUSTSlide4-16SupplyandDemandAnalysisoftheBondMarketSchoolofManagementinHUSTSlide4-17DerivationofDemandCurvei=RETe=(F-P)PPointA:P=$950i=($1000-$950)=.053=5.3%$950Bd=100PointB:P=$900i=($1000-$900)=.111=11.1%$900Bd=200SchoolofManagementinHUSTSlide4-18PointC:P=$850i=17.6%Bd=300PointD:P=$800i=25.0%Bd=400PointE:P=$750i=33.0%Bd=500DemandCurveisBdinFigure1whichconnectspointsA,B,C,D,E.HasusualdownwardslopeDerivationofDemandCurveSchoolofManagementinHUSTSlide4-19SupplyandDemandAnalysisoftheBondMarketSchoolofManagementinHUSTSlide4-20DerivationofSupplyCurvePointF:P=$750i=33.0%Bs=100PointG:P=$800i=25.0%Bs=200PointC:P=$850i=17.6%Bs=300PointH:P=$900i=11.1%Bs=400PointI:P=$950i=5.3%Bs=500SupplyCurveisBsthatconnectspointsF,G,C,H,I,andhasupwardslopeSchoolofManagementinHUSTSlide4-211.OccurswhenBd=Bs,atP*=850,i*=17.6%2.WhenP=$950,i=5.3%,BsBd(excesssupply):P↓toP*,i↑toi*3.WhenP=$750,i=33.0,BdBs(excessd