Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN: 9781337902571
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 6, Problem 1Q
Summary Introduction
To identify: The comparison between the interest rates available at different places.
Introduction:
Interest Rate: A rate at which a borrower is ready to pay and depositor is ready to receive the money is known as interest rate.
Expert Solution & Answer
Answer to Problem 1Q
- Yes, the difference of the residential mortgage rates of two different cities can be persisted.
- There are certain forces like demand and supply that can lead to the rates to be equal.
- No, the cost of money borrows for the business purpose doesn’t lead to the same risk as the money should be borrowed from the place which charges the less interest.
- The large firms of the NY and C will prefer to take loan which has the less cost of money.
- To borrow the money the less interest rate is better and to invest the money high interest rate is better.
Explanation of Solution
- The differences of the interest rates totally depend upon the demand or supply of the financial product that prevail in the market.
- The increase in supply leads to decrease in the interest rate of New York and rates would be equalized.
- The increase in demand leads to increase in the interest rate of New York and rates would be equalized.
- The businesses might take into consideration of the cheapest available mortgages.
- The center which provides the money at the lowest possible cost should be preferred by the large business firms and the interest rates will be equalized and small firms will be able to get the loan at the lowest cost.
Conclusion
Hence, to invest money the higher interest rate should be preferred and to borrow the money lower interest rate should be preferred and these interest rates has an effect from the demand and supply of product.
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Chapter 6 Solutions
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Ch. 6 - Prob. 1QCh. 6 - Prob. 2QCh. 6 - Suppose you believe that the economy is just...Ch. 6 - Prob. 4QCh. 6 - Suppose a new process was developed that could be...Ch. 6 - Prob. 6QCh. 6 - It is a fact that the federal government (1)...Ch. 6 - Suppose interest rates on Treasury bonds rose from...Ch. 6 - Prob. 9QCh. 6 - Suppose you have noticed that the slope of the...
Ch. 6 - YIELD CURVES Assume that yields on U.S. Treasury...Ch. 6 - REAL RISK-FREE RATE You read in The Wall Street...Ch. 6 - Prob. 3PCh. 6 - DEFAULT RISK PREMIUM A Treasury bond that matures...Ch. 6 - MATURITY RISK PREMIUM The real risk-free rate is...Ch. 6 - INFLATION CROSS-PRODUCT An analyst is evaluating...Ch. 6 - EXPECTATIONS THEORY One-year Treasury securities...Ch. 6 - Prob. 8PCh. 6 - Prob. 9PCh. 6 - INFLATION Due to a recession, expected inflation...Ch. 6 - Prob. 11PCh. 6 - MATURITY RISK PREMIUM An investor in Treasury...Ch. 6 - Prob. 13PCh. 6 - EXPECTATIONS THEORY AND INFLATION Suppose 2-year...Ch. 6 - EXPECTATIONS THEORY Assume that the real risk-free...Ch. 6 - Prob. 16PCh. 6 - INTEREST RATE PREMIUMS A 5-year Treasury bond has...Ch. 6 - Prob. 18PCh. 6 - Prob. 19PCh. 6 - INTEREST RATE DETERMINATION AND YIELD CURVES a....Ch. 6 - INTEREST RATE DETERMINATION Maria Juarez is a...
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