What Determines Interest Rates

What Determines Interest Rates - What Determines Interest...

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What Determines Interest Rates? From Last Time How is it safer to invest in an index fund vs. an actively managed fund if the index fund's performance depends on the market? It is not safer to invest in the index fund. The performance of both an index fund and an actively managed fund depend on the market as a whole. Beta measures the risk of a particular portfolio relative to the market as a whole. What studies have found is that the risk-adjusted returns on an S&P 500 index fund are higher than the risk-adjusted returns on the vast majority of actively managed mutual funds. One reason is lower costs; the other reason has to do with efficient market, which we will talk about in a few weeks. A numerical example: Suppose that the expected return on the stock market as a whole is 8% and that the return on the risk-free asset, say a 30-day Treasury bill, is 5.5%. What does the CAPM say is the expected return on a stock with a beta equal to 1? The CAPM equation is E(R i ) = R f + B
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.

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What Determines Interest Rates - What Determines Interest...

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