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4 years ago

Determinants of market interest rates

Business

1 answer:

ollegr [7]4 years ago

7 0

Answer:

1. Real risk-free rate.

2. Nominal risk free-rate.

3. Inflation premium.

4. Liquidity risk premium.

5. Liquidity risk premium.

6. Maturity risk premium.

Explanation:

Market interest rates can be defined as the amount of interests (money) paid by an individual on deposits and other financial securities or investments. The factors that typically affect the market interest rate known as the determinant of market interest rates are;

1. This is the rate on short-term U.S. Treasury securities, assuming there is no inflation: Real risk-free rate r*

2. It is calculated by adding the inflation premium to r*: Nominal risk free rate.

3. This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time: Inflation premium.

4. This is the premium added as a compensation for the risk that an investor will not get paid in full: Liquidity risk premium.

5. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value: Liquidity risk premium.

6. This is the premium that reflects the risk associated with changes in interest rates for a long-term security: Maturity risk premium.

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You are running a hot Internet company. Analysts predict that its earnings will grow at 30% per year for the next five years. Af

Andrej [43]

Answer:

The present value of the future earnings is $51,981,214.36

Explanation:

The present value of the earning can be calculated by discounting the earnings for the next five years along with calculating the terminal value of earnings at the end of the five years when the growth rate in earnings becomes constant and discounting it back to the present value.

Taking the value in millions,

Present Value = 1 * (1+0.3) / (1+0.08) + 1 * (1+0.3)^2 / (1+0.08)^2 +

1 * (1+0.3)^3 / (1+0.08)^3 + 1 * (1+0.3)^4 / (1+0.08)^4 + 1 * (1+0.3)^5 / (1+0.08)^5 + [( 1 * (1+0.3)^5 * (1+0.02) / (0.08 - 0.02)) / (1+0.08)^5]

Present value = $51.98121436 million or $51,981,214.36

8 0

3 years ago

Your college bookstore is responsible for the gathering, sorting, and dispersing of books required for a literature course on ca

Nataly [62]

The function of gathering, sorting, and dispersing books required for a literature course by the college bookstore is an example of b. logistical functions that intermediaries perform.

The bookstore is an intermediary between the students (customers) and the publishers (suppliers) of the literature book. The bookstore is not performing a transactional, transitional, or facilitating function.

Thus, the college bookstore performs a logistical function by managing the inventory, transportation, and warehousing needs of the college.

Learn more:brainly.com/question/18686811

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3 years ago

Of the last 100 customers entering a computer shop, 25 have purchased a computer. If the classical method for computing probabil

nlexa [21]

Answer:

correct option is b.0.50

Explanation:

given data

computer shop = 100 customers

purchased computer = 25

solution

we know that past data does not affect the probability of next outcome

so when they buying computer or net

so here

probability of customer buy computer is = $\frac{1}{2}$ = 0.5

and

probability of customer not buy computer is = $\frac{1}{2}$ = 0.5

so here chance of buying as they buying or not buying is 50 %

so correct option is b.0.50

3 0

3 years ago

Gordon Industries has 6 percent coupon bonds outstanding with a face value of $1,000 and a market price of $959.21. The bonds pa

algol13

12.0 years will take for these bonds to mature.

What is a coupon in bonds?

The term "coupon," which is also sometimes referred to as "coupon payment," refers to the annual interest rate that is paid on a bond from the date of issuance until maturity. It is described as being a percentage of the bond's face value. When discussing coupons, the coupon rate is frequently employed.

How does coupon rate affect bond price?

The price of bonds is significantly influenced by the coupon rate on a bond in comparison to current market interest rates. Bond prices increase when a coupon is more than the current interest rate; prices decrease when a coupon is lower.

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2 years ago

A company wishes to raise $170 million by issuing 20-year annual coupon bonds. Each bond will have a face value of $1,000; coupo

Margarita [4]

Answer:

The answer to the question is B I51,753 bonds

Explanation:

The present price of the bond and the total amount to be raised of $170m were used in arriving at the number of bonds to be issued.

n 20

Coupon 6.60%

YTM 7.7%*1000=77

FV 1000

PV ($1,120.25)

The current price of the bond $1,120.25

Total amount to be raised $170,000,000

Number of bonds to be issued=total amount /bond price 151,752 approx...151753

Find attached spreadsheet with formulas so as to be able to follow through.

Download xlsx

6 0

4 years ago