--%>

Structure of Interest rates

Which determines the shape of the term structure of Interest rates?

E

Expert

Verified

There are three fundamental components. The first two are real rate of interest and rate of inflation. The real rate of interest is the recompense investor’s demand for forgoing the utilization of their money. You can think of it as pure time value of money subsequent to adjusting for the influences of inflation. The real rate of interest is the fundamental component underlying each and every interest rate, despite of the time to maturity. Whenever the real rate is high, all interest rates will tend to be high, and vice-versa. Therefore, the real rate doesn't actually find out the shape of the term structure; rather, it mostly influences the total level of interest rates.

   Related Questions in Corporate Finance

  • Q : Earnings management What do you mean by

    What do you mean by Earnings management and what are their actions and activities?

  • Q : Which data is the most suitable for

    Which data is the most suitable for finding betas?

  • Q : An example of use beta of Kinepolis in

    A financial consultant is valuing the company I set as an objective (an entertainment centre) by discounting the cash flows until the end of the dealership at 7.26% (interest rate on 30-year-bonds = 5.1%; market premium = 5%, and Beta = 0.47%). 0.47 is a beta provided

  • Q : Did you see Vueling case Did you notice

    Did you notice the Vueling case? How is this possible that an investment bank sets the objective price of its shares in €2.50 per share upon the 2nd of October, 2007, just after replacing Vueling shares at €31 per share in J

  • Q : How must we compute the beta and the

    How must we compute the beta and the risk premium?

  • Q : Abnormal profits based on fundamental

    If it is possible to make abnormal profits based on fundamental analysis, you can conclude that the market is: A) Not weak-form efficientB) Weak-form efficientC) Not semi-strong-form efficientD) Semi-strong-form e

  • Q : Who introduced put–call parity Who

    Who introduced put–call parity?

  • Q : Which method must use to valuate young

    Which method must we use to valuate young companies along with high growth but uncertain futures? Two illustrations were Boston Chicken and Telepizza while they began.

  • Q : Efficiency Ratios Efficiency Ratios :

    Efficiency Ratios: These ratios comprise Receivables Turnover, Inventory Turnover, Asset Turnover and Net Working Capital Turnover ratios. Efficiency ratios show the utilization of Assets of the company thus as to generate Revenue that is, the best ut

  • Q : Which parameter good measures value

    Which parameter good measures value creation; the Economic Value Added (EVA), the CVA (Cash Value Added) or the economic profit?