Name: Money and Banking: Lecture 6 - Interest Rates and Present Value 1
Uploaded: 2020-03-16T03:40:09.000Z
Duration: 49 min 40 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

To-infinitive

Future simple

We're gonna talk about asset values and interest rates.

Present continuous

And so anyway, as we start this, let's just talk about interest rates.

I have heard a 1,000,000 people, possibly less than a 1,000,000 people.

I've heard many people talk about interest rates, and here's what they like to say.

And you should not write this down because I'm gonna tell you something's wrong.

No, the interest rate is the price of credit.

Well, first of all, what do we mean by the price of something we mean what you have to give up in order to get it right.

And so if we were talking about the price of money, the price of money is what you have to give up more to get it.

And you can give up your labor service is you could give up goods and service is product.

And so if we talk about the price of money, the price of money is expressed in terms of the goods and service.

That didn't sound like the interest rate credit is alone.

And so the interest rate, her interest, That's what we pay to get alone.

If you borrow something else, some other merchandise, not money, then you still have to pay for the use of that something.

Also, back in the old days, before there was money and never is commodity monies and things like this are just commodities.

People would borrow commodities and pay interest for that loan.

And nowadays we might use the term rent or something like that you might go to Well, anyway, you want to go too far down that path.

But people paid for the use of various commodities.

So anyway, alone refers to credit, and the interest rate is the price of credit and were eventually in this unit going to get around and talk about what determines that price and gets one.

And there will be a lot of details that go into it.

But prices in markets get determined by two things.

What are they supply and demand And so we're gonna talk about supply and demand for credit and then that will determine the price of credit, the interest rate.

And so anyway, we'll eventually get around to that.

There's different ways of thinking about why I shouldn't say that.

But it plays various roles in our economy.

One is this is it is an incentive two people to postpone spending.

Okay, For example, you goto work, you earn 1000 bucks.

Well, if somebody comes along and says, Hey, if you'll loan me that money, I'll give you interest.

And what they're really saying about that is don't spend that money.

Let me spend Let me use it and then I'll pay you back later and you can spend right on dso when we get interest.

The way we get that interest is we don't spend everything we have on.

We postpone our spending until later, and so interest gives us an incentive to do that.

And also, let's just say you're in $1000 you spend $1000 and you want to spend more.

You want to spend $2000 you have to go out and borrow, and then you have to pay interest.

And so when you go out and pay interest, you're saying, Oh, man, that hurts.

And again, we're back to this idea of postponement spending, okay?

And so anyway, this is an important role that is played by interest in our economy.

Ah, lot in this, uh, this unit of material.

But it's kind of shift gears and start talking about something else that will have interest blended into the discussion future value.

And this starts off kind of simple, kind of slow.

It could be $10 a $1,000,000 whatever you want.

But let's say you had P dollars today, and then you put that in a bank account or you invested in a bond or something like this, and you just let it sit there And now those dollars set there and then you come back one year hints one year from today and you say, Hey, how much?

And by the way, you'll see this all in a few minutes anyway.

But I'm using P and f these air just, you know, symbols like the Exxon.

But I'm using the P because we're talking about the present amount of money okay today and then f ah, future amount of money.

And so I'm using letters here rather than the number because we're just using generalized notation.

If this were $10 the discussions the same as if it's a 1,000,000.

The specific numbers work out differently.

So anyway, we're just using these symbols to represent a certain number of dollars in the present.

A certain number of dollars in the future.

You know, in the future I would have the original amount.

Plus, I'd have interest, right if I put this money in a bank account and then I go back a year from now I would get back my p dollars, and I would also get back whatever the interest rate is.

I'll use this interest rate percent, and we'll put it in decimals.

So, like if it's 5% 0.5 but anyway, so if I go back a year from now, how much would be in my account in the future of my original P dollars pause interest multiplied by that original P dollars.

And so, if we let that be 5% and let's say P dollars are $100 today, then I go back at the end of a year.

I'd have my original $100 plus 5% 50.5 times the $100 equals 100 plus five equals $105 nearby with me on that.

And by the way, I could factor a little bit here, and then it would look like this.

My f dollars, How much I would have in the future equals p times one plus I not taking that dollar sign out of their just cause we don't need that forever.

I put down P dollars today and then I leave it there and then I get F dollars and I wait two years.

And then for the first year, I got interest on that P dollars.

And then in the second year, I got interest on that P dollars again, Is that it?

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Money and Banking: Lecture 6 - Interest Rates and Present Value 1

present

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general

exact