--%>

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 : 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 : Data Case Please Assist with the

    Please Assist with the attached Data Case Assignment

  • Q : Historical return on stock market and

    The market risk premium is difference among the historical return upon the stock market and the risk-free rate, for yearly. Why is this negative for some years?

  • Q : Which data is the most suitable for

    Which data is the most suitable for finding betas?

  • Q : Corporate Earnings Analysis exercise

    Identify two comparable corporations.  Explain why you think they are comparable to your corporation. Earnings analysis:  Do an earnings analysis of your corporation.  Calculate and plot.

    Q : Liquidity Ratios Liquidity Ratios :

    Liquidity Ratios: Such ratios comprise the Current Ratio and the Quick Ratio or the acid test ratio. Liquidity ratios demonstrate the Liquid position of a company in the short term that is the capability of a firm to pay its obligations in short term.

  • Q : Problem about commercial and fiscal

    A court assigned to me (as an auditor and economist) a valuation of a market butcher’s. The butcher’s did not give any simple income statements or any valuable information that I could use in my valuation. This is a small business with just two workers, th

  • Q : Problem on common stock The AB Corp

    The AB Corp stock has a β of 1.15 and it will pay a dividend of $2.50 next year. The expected rate of return of the market is 17% and the current riskless rate is 9%. The expected rate of progress of AB is 4%. Find the value of its common stock.

  • Q : Calculate the risk-free rate You have

    You have been given the following information on two corporations; you are to assume that thesecurities are correctly priced. My Corp, Inc. has a Beta of 1.25 and an Expected Return of .145;Your Corp, Inc. has a Beta of .75 and an Expected Return of .095. Based on the

  • Q : EPS problem XY Corporation is an all

    XY Corporation is an all equity firm with a total value of $20 million. It needs an additional capital of $5 million, which may be either equity, or debt at the interest rate of 10%. After the new capitalization, the expected EBIT is $5 million, with standard deviatio