What are the key determinants of the real rate of interest

Assignment Help Financial Management
Reference no: EM131020055

According to the Fisher model, what are the key determinants of the real rate of interest?

Suppose that the average rate of time preference among economic units decreases (i.e. increased preference for future consumption). Use the Fisher model to illustrate how this change would affect the interest rate and the amount of investment in a closed economy. What would happen to current vs. future production (and consumption)?

Reference no: EM131020055

Questions Cloud

It is possible to reduce risk of the portfolio by adding : It is possible to reduce risk of the portfolio by adding a ________ risk investment if it is ________ correlated with other investments.
Bond valuation example problem : Suppose that Diversified Technology has a B-rated bond with exactly 30 years until maturity, a face value of $1000 and a semiannual coupon rate of 6%. The yield to maturity on B-rated bonds today is 10 percent. What is the price of this bond today?
The primary advantage of eurobonds is : The primary advantage of Eurobonds is
Contracts may help firms hedge against exchange rate risk : Futures contracts may help firms hedge against exchange rate risk by
What are the key determinants of the real rate of interest : According to the Fisher model, what are the key determinants of the real rate of interest?
True with respect to interest rate arbitrage : Which of the following is NOT true with respect to interest rate arbitrage?
Regular contribution to his retirement account is expected : In 2 years from today, steph plans to invest $ 6500 in an account that is expected to earn 3.15 percent per year. She also expects to make an investment of X in the same account in 1 year from today. Piotr plans to make regular savings contribution o..
Cost of common equity financing using gordon model : Last year the Black Water Inc. paid dividends $4.51. Company’s dividends are expected to grow at an annual rate of 2% forever. The company’s common stock is currently selling on the market for $84.58. The investments banker will charge flotation cost..
What is the price of this bond today : Suppose that Diversified Technology has a B-rated bond with exactly 30 years until maturity, a face value of $1000 and a semiannual coupon rate of 6%. The yield to maturity on B-rated bonds today is 10 percent. What is the price of this bond today? w..

Reviews

Write a Review

Financial Management Questions & Answers

  Stated or coupon rate

What would you pay for a $200,000 bond that matures in 10 years and pays 8% interest (stated or coupon rate) a year if you wanted to earn a yield of 6% (market rate)? Please show work.

  What will be your rate of return if price of telecom stock

You are bullish on Telecom stock. The current market price is $80 per share, and you have $9,000 of your own to invest. You borrow an additional $9,000 from your broker at an interest rate of 9% per year and invest $18,000 in the stock. a. What will ..

  Calculate the profitability of the chester company account

Wizard Corporation has analyzed their customer and order handling data for the past year and has determined the following costs: Order processing cost per order $7 Additional costs if order must be expedited (rushed) $10.00 Customer technical support..

  Portfolio return-what is your portfolio return

Portfolio Return At the beginning of the month, you owned $5,500 of General Dynamics, $7,500 of Starbucks, and $8,000 of Nike. The monthly returns for General Dynamics, Starbucks, and Nike were 7.44 percent, 21.36 percent, and 20.54 percent. What is ..

  Use to create project an amortization schedule

The goal of this project is to create a worksheet that through inputs and a series of formulas, be a basis of an expandable tool, that you can use to create project an amortization schedule.

  Impact on profits if costa were to accept this special order

Costa Company has a capacity of 40,000 units per year and is currently selling 35,000 for $400 each. Barton Company has approached Costa about buying 2,000 units for only $300 each.

  What was deltas payout ratio for fiscal year

Delta Corporation earned $2.50 per share during fiscal year 2011 and paid cash dividends of 1.00 per share. During the fiscal year that just ended on December 31, 2012, Delta earned $3.00 per share, and the firm’s managers expect to earn this amount ..

  What is the IRR of the investment

A large cow barn will cost $150,000 to build today and you figure it will add $18,000 per year to your after-tax cash flows for the next ten years. If the salvage value of the building is 50% after ten years and the cost of capital is 7%, what is the..

  Rust bucket motor credit corporation

Rust Bucket Motor Credit Corporation (RBMCC), a subsidiary of Rust Bucket Motor, offered some securities for sale to the public on March 28, 2008. Under the terms of the deal, RBMCC promised to repay the owner of one of these securities $100,000 on M..

  Utility is valued using a discount rate

Star Light & Power increases its dividend 2.9 percent per year every year. This utility is valued using a discount rate of 9 percent, and the stock currently sells for $52 per share. If you buy a share of stock today and hold on to it for at least th..

  Notoriously conservative in lending to new business firms

In contrast to venture capital, commercial banks are notoriously conservative in lending to new business firms.  What makes venture capitalists more eager to finance risky projects? Suppose you are very favorably considering a venture that has the fo..

  Certificate of deposit

Let's say Misty Shadle deposits $310,500 dollars in a CD (Certificate of Deposit) at Star Bank. The bank is offering to pay 4.05% interest for 6 years. What will be the balance in Misty's account six years from today. (NOTE; compounded weekly, 52 tim..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd