--%>
Assignment Help - homework help

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 : Which data is the most suitable for

    Which data is the most suitable for finding betas?

    		•
  • Q : Briefly describe the financial services

    1 FINANCIAL SERVICES BY BANKS Financial system facilitates the transformation of savings of individuals, government as well as business into investment and consumption. It consists of

    		•
  • Q : What is the value of stock Brushy

    Brushy Mountain Mining Company's ore reserves are being depleted, so its sales are falling. Also, its pit is getting deeper each year, so its costs are rising. As a result, the company's earnings and dividends are declining at the constant rate of 5% per year. I

    		•
  • Q : Commercial Banking Assignment Part I

    Part I Guidelines and requirements: The questions in Part I of this assignment are based on the materials covered in Units 1 and 2. Please write a short-ess

    		•
  • Q : What is the required rate of return on

    Woidtke Manufacturing's stock currently sells for $29 a share. The stock just paid a dividend of $2.50 a share (i.e., D0 = $2.50), and the dividend is expected to grow forever at a constant rate of 9% a year. What st

    		•
  • Q : Types of Corporate Bonds What are the

    What are the various types of Corporate Bonds?

    		•
  • Q : Is net income of a year is doubtful for

    Is the net income of a year money the company made that given year or is this a number whose importance is quite doubtful?

    		•
  • Q : How you can predict future evolution of

    Could we suppose that, as we cannot predict the future evolution of the value of shares, a good estimation would be to consider this constant during the next five years?

    		•
  • Q : Understand and interpret financial

    Our purpose this week: learning how to understand and interpret financial statements. Assignment: The class should discuss all of the questions listed below as they rel

    		•
  • Q : Problem on Yield to maturity Shawna

    Shawna desires to invest her recent bonus in a 4-year bond which pays a coupon of 11 % semi-annually. The bonds are selling at $962.13 nowadays. When she buys such bond and holds it to the maturity, what would be her yield? (Round to the nearest answer.) (i) 11.5%&nbs

    		•