How interest rates affect our lives

How do interest rates affect our lives?

Interest rates are one way to express the price, or cost, of money obtained from someone else. For example, your credit card lends you money every time you make a purchase. Think about how interest rates affect your personal financial behavior with regard to spending and saving. Think also about the relationship between changing interest rates and longer-term interest bearing securities (bonds, mortgages, etc.), and how interest rates affect our lives in general.

Answer ALL 4 questions below:

Answer all of the questions below in (200 words or more). There are no wrong answers, but you must justify your opinions. Your answers must be well thought out, and well-written.

  1. What do you think will happen with interest rates in the coming years? Do you expect them to continue to rise, and what economic conditions might influence these changes?
  2. A credit score is a number ranging from 300 to 850 that essentially represents the probability that someone will pay their bills, and are widely used by lenders to determine the interest rate that you will pay (for example, on a car or home loan) and your credit limit. Do you know your credit score (see credit karma.com (Links to an external site.))? You do not need to disclose it, but what can you do to improve it?
  3. What is the current rate (approximately) for a 30-year fixed-rate mortgage? How will rising or falling interest rates affect a future home purchase? In what situation might you prefer a variable rate mortgage?
  4. Suppose that you inherited some 2.25% US Treasury bonds from your grandfather that mature in 2027. Although they were originally purchased at par (and will mature at $1,000), they currently have a market value of around $950 each. If you believe that interest rates will continue to rise, should you sell, hold, or try to buy more? Explain why.
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