When estimating cost of debt, the firm should not simply use current short-term rates because these rates do not reflect expectations regarding Group of answer choices long-term inflation expansionary monetary policy contractionary monetary policy short-term inflation
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- is it possible for future prices to become negetive without violating the principle of no-arbitrage. justify the using finance theory and/or empirical evidenceIf interest rates increase because of a previously unanticipated inflation rate risk? long-lived debt instruments will decline more than short-lived debt instruments long-lived debt instruments will decline less than short-lived debt instruments neither set of debt instruments will decline all other things being equal, both should decline equallyWhat is meant by the real risk-free rate of interest? Seleccione una: a. The nominal risk-free interest rate, less the expected inflation. b. The rate actually used in the market, not in textbooks. c. The rate quoted on short-term Treasury bills. d. The opportunity cost of foregoing consumption, representing the rate that must be offered to individuals to persuade them to save rather than consume.
- When the real rate of interest is less than the nominal rate of interest, then: Multiple Choice inflation must be added to the nominal rate. investment returns do not increase purchasing power. nominal flows should be discounted with real rates. inflation is expected to occur.is it incorrect to use coupon rate of debt towards cost of debt? Briefly explain.Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assets
- How is book value per share calculated? Explain how inflation and R&D programsmight cause book values to deviate from market values.Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? How should the capital structure weights are used to calculate the WACC be determined?If interest rates in the economy are high, then a firm would use a MARR higher than current interest rates, and if interest rates are low, The MARR may be lower TRUE OR FALSE With explanation
- Convexity is the difference between O actual price change and duration-predicted price change O actual price change and market average price change O actual price change and government bond price change O actual price change and yield to maturity changeWhich one of the following statements is false concerning the term structure of interest rates? Group of answer choices The real rate of return has minimal, if any, effect on the slope of the term structure of interest rates. The interest rate risk premium increases as the time to maturity increases. Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates. The term structure of interest rates includes both an inflation premium and an interest rate risk premium. As the maturity increases the term structure of interest rates is always an upward sloping curve.What is the relationship between forward rates and the market’s expectation of future short rates? Explain in the context of both the expectations hypothesis and the liquidity preference theory of the term structure of interest rates.
