How can we compare interest rates that are compounded differently?

Q: According to our authors, define and provide an example of an “effective interest rate.

A: Effective interest rate- Formula for Effective interest rate= 1+Nominal Annual interest ratenn-1…

Q: What is the two-step process can which performs deflation and discounting in market interest rate?

A: The two-step process which performs deflation and discounting is that it makes the cash flows…

Q: What are the differences between a money market and a capital market?

A: Two main sources of finance are: Internal sources External sources. Company requires funds for…

Q: What are the components of the risk-free rate?

A: risk free asset: it is the asset which does not carry any risk.

Q: How low can nominal interest rates go? Explain why they can become negative.

A: The nominal interest rate is the interest rate that is calculated before inflation is factored in.…

Q: Define the term internal rate of return?

A: The internal rate of return (IRR) is a capital budgeting metric used to gauge the benefit of…

Q: What is the marginal rate of return? How is it calculated?

A: Answer: Marginal rate of return can be defined as the return obtained or received by means of…

Q: 7. Identify some economic factors that influence interest rates and explain the effects of each.

A: The interest rate can be defined as the rate used by borrower and lender in order to borrow or lend…

Q: Give a definition of a "return". Why do we need to incorporate risk into return (discount rate)?

A: Investment: An investment is when money is used now with the goal of increasing its value later. In…

Q: Why are the net present value and the internal rate of return models superior to the payback period…

A: The net present value and internal rate of return techniques are superior to the payback method…

Q: What is negative inflation premium

A: Negative inflation premium, also known as deflationary premium, refers to a situation where the…

Q: You should find that your answer in part c) is larger than your answer in part b). By considering…

A: This is general practice to be followed universally that if a person choose to pay any loan amount…

Q: Which Interest Rate do we use in comparing different financing options?

A: The question is based on the concept of interest rate , which is used in comparing financing…

Q: ected rate of return concept differ from that of the rea

A: There are many method of valuation of stock based on expected rate and realized return and dividends…

Q: What does it mean when you have a risk-free guaranteed rate? Give an example as well as the…

A: Theoretically, an investor anticipates a return of no less than the risk-free rate on any investment…

Q: The static GAP focuses on monitoring net interest income in the long term.   Select one: True…

A: The Static GAP focuses on monitoring net interest income in the short term but it can be calculated…

Q: What is meant by the term abnormal rate of return?

A: Abnormal rate of return is return earned above or below the normal rate of return.

Q: What is the difference between the possible returns and the expected return?

A:

Q: What is the compensation for price risk in finance? How do they arise and what issues arise due to…

A: Price risk: Price risk can be defined as the risk that price of a security may reduce. This risk is…

Q: Will the actual realized yields be equal to the expected yields if the interest rates change? If…

A: Actual realized yield refers to the actual return earned by an investor on a bond or other…

Q: Explain how the concept of comparable risk is incorporated into the discount rate.

A: The concept of comparable risk is fundamental to determining the appropriate discount rate to use…

Q: What are some possible financial decisions in which using the Rate formula might be helpful

A: An interest rate, denoted r, is a rate of return that reflects the relationship between differently…

Q: Which of the following is not a variable in the basic present value equation? Multiple Choice…

A: Investors are holding securities for the purpose of gaining the returns. The return is calculated…

Q: You should find that your answer in part c) is larger than your answer in part b). By considering…

A: We know that if borrower choose to pay in longer period the installment amount is lower but the…

Q: o you think a person would opt to use the Payback Period Method instead of the Net Present Value or…

A: Given information : . NPV refers to the difference between the sum of the present value of expected…

Q: What do we mean by internal rate of return (IRR)?

A: Internal rate of return : Internal rate of return is one of the techniques used in capital budgeting…

Q: Explain the challenges policymakers face when interest rates are very low.

A: An interest rate is referred to as an amount that is charged over as well as above the principal…

Q: When is a project in Need for an External Interest Rate?

A: When net cash flow that is generated by the project during the project’s life is reinvested, then…

Q: What are the different terms used to refer to the rate of return?

A: Rate of return is an expected profit on an investment by a investor. It is a rate at which investor…

Q: When the quantity of a financial security supplied or demanded changes at every given interest rate…

A: Explanation: Interest rate shifts (i.e., the price of financial capital) are creating a shift along…

Q: Can real interest rates be negative

A: The real rate of return is calculated to ascertain the actual return on investment considering the…

Q: Explain Comparing Risk Premiums?

A: Risk premium is additional premium an investor achieves by investing in a riskier financial…

Q: What is present value interest factor?

A: The present value interest factor is a mathematical equation used to estimate today's value of money…