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State the expectations theory of the term structure of interest rates.
Expectations theory:
The expectations theory of the term structure of interest rates specifies that into equilibrium, each long-term rate is a geometric average of today’s short term rate and usual short-term rates in the future.
This theory needs that there is an implicit relationship in between forward rates and current bond yields. The forward rate of interest is the rate of interest which will be payable onto funds beginning at any future date.
Accept-Reject Rule: The decision rule is to accept the project if the computed payback period is less than the standard. If not, reject it. While ranking the projects, projec
Q. Example on Walters dividend model? Example: - The following information is obtainable in respect of a firm: Capitalisation Rate (Ke) = 10% Earning
In a floating rate security, the coupon rate changes periodically as per the reference rate. The yield to maturity of floating rate securities cannot be calculated as
Significance of cost of capital
You plan to borrow $125,000 at a 9.5% annual interest rate. The terms require you to amortize the loan with 10 equal end-of-year payments. How much interest would you be paying i
Q. Explain Compound Value of an Annuity? Compound Value of an Annuity: - Annuity demotes to the periodic flows of equal amounts. FV = A {(1+i)n - 1}/i Instance: - Mr. X i
Protected Put A protected put would involve a long put and a long stock. For example - ONGC. Underlying stock = Rs. 809 Buy Mar Rs. 900 Put @ Rs.68.8 Total cos
Characteristics of Warrants As mentioned earlier, a warrant is a variant of a call option and gives the holder a certain right to purchase shares of the company at a predetermi
What is Financial index & commodity index? Method of index uses in calculation? Weighted average method? How to calculate index?
What is Rationale and behind profitability maximisation Rationale & behind profitability maximisation, as a guide to financial decision making, is simple. Profit is a test of e
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