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Stock Market and Interest Rate charts

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Stock Market and Interest Rate charts

- Dow Jones Industrial Average List http://money.cnn.com/data/dow30/
- S&P 500 Complete list http://nyjobsource.com/sandp1.html
- NASDAQ http://en.wikipedia.org/wiki/Nasdaq_Composite
http://en.wikipedia.org/wiki/NASDAQ

http://www.allstocks.com/NASDAQ/

Long-term View of the DJIA

Price and earnings move together, dividends are lagging

- Multiple = price to earnings ratio
- High multiples are sensible only if earnings are going to grow rapidly

9/29/00

The Federal Reserve “targets” the federal funds rate.

Treasury Interest Rates

Prime Rate Constant at 3.25% since Jan. 2009

Inflation

- Have looked at historical interest rates for perspective
- Yield curve is forward looking and contains implicit rates for future years
- Interest rate futures are traded on CME group exchanges and provide market expectations
- Interest rates are relatively low in 2012
- Cannot “lock in” today’s low rate – can only lock in forward or futures rates

- Hypothetical interest rates available
- Fixed for one year @ 3%
- Fixed for two years @ 4%
- Fixed for three years @ 5%

- The cost for the first year is 3%.
- The two year loan costs 8% over two years, of which
- 3% is the first year cost,
- leaving 5% as the implied forward rate for the second year.

- If you take the three year fixed period, the cost for three years is 15%
- subtracting 3% for the first year and 5% for the second year, leaves 7% as the cost in the third year.
- Thus, 5% and 7% are the year two and three forward rates.

- irj = interest rate from time i to time j.
- one year rate ; 0r1 = 3% -- given
- two year cost: (1.04)2 = (1.03)(1+1r2) 1r2 = 5.01%
- three year cost: (1.05)3 = (1.03)(1.0501)(1+2r3) 2r3 = 7.029%

- CME group
- Treasuries of different maturities and Eurodollar Futures
- Eurodollar futures are on 3 month LIBOR interest rates
- London Interbank Offered Rate
- Traded many months into the future
- Prices quoted as 100 minus the percentage interest rate
- 5% interest would be quoted as a Eurodollar futures price of 95.

- http://www.cmegroup.com/trading/interest-rates/

3 month LIBOR futures

9/4/2012