09_15_09_Ch6 Interest Rates

09_15_09_Ch6 Interest Rates - Evan Stein Professor Swasey...

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Evan Stein September 15, 2009 Professor Swasey FINA 3301, Sec 2 Chapter 6 Outline: Interest Rates Low interest rates encourage investment and stimulate consumer spending Companies raise capital: o Debt o Equity Interest Rate –  The price that lenders receive and borrowers pay for debt capital Four fundamental factors affecting the cost of money: o Production Opportunities  – The investment opportunities in productive  (cash-generating) assets o Time Preferences for Consumption  – The preferences of consumers for  current consumption as opposed to saving for future consumption o Risk    In a financial market context, the chance that an investment will  provide a low or negative return The higher the perceived risk, the higher the required rate of return o Inflation  – The amount by which prices increase over time The higher the expected rate of inflation, the larger the required 
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This note was uploaded on 02/25/2012 for the course FIN 4319 taught by Professor Toles during the Fall '08 term at Texas State.

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09_15_09_Ch6 Interest Rates - Evan Stein Professor Swasey...

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