Chapter 1, Problem 28QA

Suppose interest rates in the economy increase. How would such a change affect the costs of both debt and common equity based on the CAPM?

What is the Relationship between Changes in Interest Rates, Investor Returns, and “Going-In”Cap Rates

The concept that market forces in the macroeconomy can remedy a recession is referred to as:   Keynesianism: the use of expansive fiscal and monetary policies to resolve a recession.   The self-correcting mechanism   The consumption function   The paradox of thrift

If short - term rate - sensitivity asset - liability GAP is negative : a)Decrease in Interest Rate will result in increase in Net Interest Income b)Decrease in Interest Rate will result in decrease in Net Interest Income c)Profit will increase notwithstanding the movement in interest rate d)Profit will increase notwithstanding the movement in interest rate

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

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

Why is it important to have a financial benchmark for short-term interest rates?

Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic Component Symbol This is the premium that reflects the risk associated with changes in interest rates for a long-term security.           It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people’s time preferences for consumption.           This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value.           It is calculated by adding the inflation premium to r*.           Over the past several years, Germany, Japan, and Switzerland have had lower interest rates than the United States due to lower values of this premium.           It is based on the bond’s rating; the higher the rating, the lower the premium added, thus lowering…

Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people's time preferences for consumption. This is the rate on a Treasury bill or a Treasury bond. This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. It is based on the bond's credit rating; the higher the rating, the lower the premium added, thus lowering the interest rate. It is based on the bond's marketability and trading frequency; the less frequently the security is traded, the higher the premium added, thus increasing the interest rate. As interest rates rise over time, bond prices fall, and as interest rates fall, bond prices rise. Because interest rate changes are uncertain over the life of the…