ABSTRACT
The chapter begins with a theoretical discussion of how interest rates ad determined. U.S. Treasury T-Bills as well as Canadian T-Bills are short-term zero-coupon bonds which often serve as the measure of the no-risk (100% certainty of payment) interest rate. Techniques for calculating the effective interest rate for these two securities based on what is called the quoted rate are provided. The chapter concludes with a discussion of how interest rates charges are effected by default risk and anticipated inflation.
