11-Interest Rate Risk. Review. Interest Rates are determined by supply and demand, are moving all the time, and can be difficult to forecast. The yield curve is generally upward sloping Interest Rate Risk: The uncertainty surrounding future interest rates.
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11-Interest Rate Risk
e.g. 0-30 days, 1-year, etc.
-19 ´.01 = -0.19
Coupon rate: 1.8%
Paying 1% per year
Annual profits: $1.8M - $0.75M = $1.05M
Rate on bonds is fixed – no matter how rates change.
Rate on deposits resets every year.
where “D” is called “Macaulay’s Duration”