--%>
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 : Illustrates reserves are real money or

    The part of the net income which is not distributed to shareholders goes to reserves (to shareholders’ equity). As dividends shows real money, reserves are real money as well. Is it true?

    		•
  • Q : Markets are expected to be Volatile

    When Markets are expected to be Volatile: For the bear and bull strategy to yield gains, it is essential that the trader takes a view on the direction of the market i.e. either bearish or bullish, and accordingly implement the strategic choice. More o

    		•
  • Q : Convertible Bonds-Corporate Bonds State

    State the term Convertible Bonds in Corporate Bonds?

    		•
  • 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 : Financial statements The concept of

    The concept of conservatism has been influential in the development of accounting theory and practice.  A major effect of conservatism is that accountants tend to recognize losses but not gains.  For example, when the value of an asset is impaired, it is wri

    		•
  • Q : Option Trading Strategies Explain the

    Explain the term Option Trading Strategies?

    		•
  • Q : Calculate their after tax cost of debt

    Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of whichrequire semiannual interest payments. Bond A has a coupon rate of 4.0%; a price qu

    		•
  • Q : Overview of capital market efficiency

    Provide a brief overview of Capital Market Efficiency?

    		•
  • Q : Explain company creates value for its

    Is this true that a company creates value for its shareholders in a year when this distributes dividends or when the quotation of the shares increases?

    		•
  • Q : What impacts have on value of a

    What impacts have on the value of a business of high inflation?

    		•