MCM- Tutorial 2 - MCM Tutorial 2 Week 3 Q1 Discuss the...

Info icon This preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Week 3 MCM- Tutorial 2
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Increase in interest rate = Increase in borrowing cost = Increasing cost of capital Company forced to borrow money at higher rate to finance it’s operation and expansion. Higher cost needed to be covered with higher company earnings or investment return, otherwise it expose company to credit risk/ inability to pay when loan interest + principal comes due. High interest environment likely to reduce company Interest Coverage Ratio, indicating high debt burden, which likely to reduce company share price. High debt led to higher risk premium, hence depressing company fair value. Consumer spending tend to reduce in high interest environment as a result of lower borrowing opportunity/ higher savings return. Thus, it translate into lower demand & profit for business. Q1. Discuss the impact of interest rate to a company. Interest rate Cost of Borrowing Investment return
Image of page 2
Q2. Discuss the following: Overnight Policy Rate
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern