CHAPTER 6 - rates) and time to maturity Graphic...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Interest Rates Interest Rates Interest – Price paid for borrowed (debt) capital Dividends and Capital Gains – price paid for equity (owner) capital
Background image of page 1

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

View Full DocumentRight Arrow Icon
Cost of Borrowed Money Cost of Borrowed Money Function of: 1. Production Opportunities 2. Time Preferences for Consumption 3. Risk $. Inflation
Background image of page 2
Determinants of Market Determinants of Market Interest Rates Interest Rates Quoted, nominal rate R = r* + IP + DRP + LP + MRP r* = real rate of interest IP = premium for expected average inflation over life of investment r* + IP = Risk-free rate = r rf
Background image of page 3

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

View Full DocumentRight Arrow Icon
Determinants of Market Determinants of Market Interest Rates Interest Rates DRP = Default risk premium LP = Liquidity premium MRP = Maturity risk premium – Interest Rate Risk
Background image of page 4
Term Structure of Interest Term Structure of Interest Rates Rates Relationship between bond yields (interest
Background image of page 5

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

View Full DocumentRight Arrow Icon
Background image of page 6
Background image of page 7

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

View Full DocumentRight Arrow Icon
Background image of page 8
Background image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: rates) and time to maturity Graphic representation Yield Curve Shapes of Yield Curve Shapes of Yield Curve Normal upward sloping Flat or humped Inverted downward sloping Determinants of Shape of Determinants of Shape of yield curve yield curve Liquidity Preference Expectations Market Segmentation Macro Factors that Influence Macro Factors that Influence Interest Rates Interest Rates Supply and Demand Federal Reserve Policy Federal Budget Deficit or Surplus International Factors i.e. foreign trade deficit Business Activity Interest Rates and Business Interest Rates and Business Decisions Decisions Long-term vs. short-term financing or investing Interest rate risk vs. Reinvestment rate risk...
View Full Document

Page1 / 9

CHAPTER 6 - rates) and time to maturity Graphic...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online