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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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3 years ago

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During 2018, Raines Umbrella Corp. had sales of $705,000. Cost of goods sold, administrative and selling expenses, and depreciat

kifflom [539]

Answer:

See below.

Explanation:

We can compute this by making an income statement extract,

Sales 705,000

Less:

Cost of goods sold (445,000)

Gross profit 260,000

Less: expenses

Admin and selling (95,000)

Depreciation (140,000)

Profit Before interest and tax 25,000

Interest expense 70,000

Profit/Loss after interest (45,000)

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Operating cash flow can be calculated by adjusting net income or losses for the depreciation expense and increases and decreases in the current assets. Since we do not have information about the current assets,

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Hope that helps.

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3 years ago