--%>
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 : Option Trading Strategies Explain the

    Explain the term Option Trading Strategies?

    		•
  • Q : Investors are irrational or naive

    Explain how companies with substandard financial history can draw the attention of investors. Are investors irrational or naive?

    		•
  • Q : Which currency is utilized in an

    Which currency has to be utilized in an international acquisition in order to compute the flows?

    		•
  • Q : Provide three examples of mutually

    provide three examples of mutually exclusive projects?

    		•
  • Q : Evaluating Beta of a Corporation

    Baldwin Corporation is planning to expand into the business of providing on-demand movies. Baldwin has debt-to-equity ratio of .25, its pretax cost of debt is 9%, and its marginal tax rate is 40%. The Harrington Corporation is already in the on-demand movie business,

    		•
  • Q : Define Cash to cash cycle Cash to cash

    Cash to cash cycle: The concept of cash to cash cycle is financial performance standard, which is associated with the management of a firm’s working capital. The definition of cash to cash or cash conversion cycle is “the length of time a

    		•
  • Q : Selling or purchasing problem Atlas

    Atlas Realty Company is interested in buying a house and renting it out for $12,000 a year, collecting the rent in advance each year. This will depreciate the house over 25 years; however sell it after 15 years at twice its purchase price. The maintenance expenditures

    		•
  • Q : Effective annual yield problem Stanley

    Stanley invested in a municipal bond which promised an annual yield of 6.7 %. The bond pays coupons twice a year. What is the effective annual yield (abbreviated as EAY) on this investment? (1) 13.4%  (2) 6.81%  (3) 6.70%  (4) None of the above

  • Q : Explain merits and demerits of standard

    Explain merits and demerits of standard market practice to find the volatility as a function of underlying.

    		•
  • Q : Explain the way of estimating an average

    Explain the way of estimating an average.

    		•