+1-415-670-9189
info@expertsmind.com
Theory of the term structure of interest rates
Course:- Corporate Finance
Reference No.:- EM13881425





Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Corporate Finance

Why long-term financing is usually more expensive than short-term financing based on the theory of the term structure of interest rates?

Requirement:

-Please use Essay Format.

-Please no less than 1000 words (excluding the title page, bibliography and appendices).

-Please use a minimum of 5 additional. references

Answered:-

Verified Expert


Preview Container content

Term structure can be defined as the exact relationship related to the rate of returns expected of bond and the maturity of that bond (with similar risk) . When expressed in terms of a diagram it is known as the yield curve. In the long term interest rates tend to be higher than that of short term and these effect is often magnified by the investor expectations. It’s often documented that with a lower interest rate prevailing in the market the bond value tends to be lower and vice versa. This means the bond investor is better off with a lower interest rate as the market value of the bond goes up and vice versa. Yield curve assumptions are based on the fact that all the intermediate cash flows accruing from the bonds are invested at a rate which equals to the YTM of that Bond




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Corporate Finance) Materials
Johnson is considering a 12-month loan as an alternative. This approach will result in two additional uncertain cash flows, as follows:  Describe the strip w it hedges the 12-
The income statement of Benning Corporation for month of July shows net income of 1,400 dollar based on Service Revenue 5,500 dollar, Wages Expense dollar 2,300, Supplies Expe
Perform an EFE Chart with at least 6 opportunities and 6 threats. Perform a CPM Chart. Compare your company with two competitors using at least 10 critical success factors.
Prepare a pro forma combined balance sheet using purchase accounting. Note that Pierson pays $180 million in cash for Drew where the cash is obtained by using long term debt
Calculate the mean square forecasted error for this firm. Plot these points on a Predictive Realization Diagram. What can we learn about the forecast pattern of this firm from
Montejo Corporation expects sales to be $12m, operating expenses other than depreciation are expected to be 75% of sales, & depreciation to be $1.5m during the next year.
Imperfect Markets Distinguish between perfect and imperfect security markets. - Explain why the existence of imperfect markets creates a need for financial intermediaries.
The paper will be mostly a summative document but you will be adding your evaluation and recommendations concerning the international challenges faced by your chosen MNC.