Gudemaranahalli - FINA 301-Q4WW-Assignment 4-1 Chap4

Gudemaranahalli - FINA 301-Q4WW-Assignment 4-1 Chap4 -...

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Name: Gayathri Gudemaranahalli Professor/section: Daniel Moore     /     FINA 301-Q4WW     Instructions: Complete the questions and/or exercises on this document, save the document with your last name/first initial, course name and chapter (e.g. John Smith would save the document as smithjFINA301ch1). Follow the submission instructions provided in the assignment. You are encouraged to use the equation editor for exercises that ask you to complete calculations to demonstrate the process you use to complete these problems. Chapter 4: Financial Markets and Interest Rate Determination Questions/exercises from your textbook: 1. Interest is said to drive the stock market. But interest is paid on bonds and loans while stocks pay dividends, never interest. It would seem that interest has nothing to do with the stock market. Explain this apparent contradiction. Interest is the price of money in a debt market. Interest rates are set by the forces of supply and demand in debt market. The companies often use borrowed money to buy new equipments and undertake new projects. When interest rates are high, borrowing is expensive and not many projects look good because they don’t earn enough to cover their interest cost. When rates
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Gudemaranahalli - FINA 301-Q4WW-Assignment 4-1 Chap4 -...

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