FIN 3100 - determinants of interest rates
The ___ the interest rate "r", the ___ the present value of the annuity
Higher; Lower Lower, Higher
the default risk premium tends to ___ when the economy is ____
increase ; contracting decrease; expanding
a consequece of the unbiased expecations theory is that if investors believe that shrot term interest rates will ___ in future periods, the yielf curve will be ___ sloped
increase, positively, decrease, negatively
the financial sector of the US business is the ___ provider of loanable funds and the ___ user of loanable funds
largest ; largest
the difference between the required yield on long and short term s ecurities of the same characteristics expect maturity is called the
maturity risk premium
true or false: the unbiased expecations theory posits that current long term interest rates are geometri averages of current and expected future short term interest rates?
TRUE
due to the value of the conversion option, convertible securities generally pay ___ rate of interest than similar non-convertible securities
a lower
the ___ the interest rate "r' the ___ the value of PV
higher ; lower lower ; higher
as an investors utility of assets obtained with borrowed funds increases, the demand for borrowed funds will ____ and interest rates will ____ .
increase ; increase
for securities that are not highly liquid, investors demand a ___ to the interest rate as compensation
liquidity risk premium
one model that is commonly used to explain interest rates and interest rate movements is called the
loanable funds theory
the ____ the interest rate "r", the ____ the value of FV
lower: lower higher ; higher
the ___ the default risk of a security, the ___ the interest rate demanding by the buyer
lower; lower higher ; higher
a single payment received at the beginning or end of an investment period is called a
lump sum payment
nominal interest rates are important because they affect the _____ of most securties traded in the money and capital markets at home and abroad
price
market segmentation theory says that the ___ and the ___ of securities of differing maturities determines the interst rate at each maturity and hence the shape of the yeild curve
supply and demand
the most frequently reported and analyzed yield curve is the curve for
us treasury securities
the relationship between interst rates and the maturity of securities that differ only in their maturity characteristic is called the term structure of interest rates or the
yield curve
if the rate of interest is set below the equilibrium rate, there will be ___ loan able funds
a deficit of
the increase in funds supplied with increasing interest rates will lead to a supply curve that is ____ slopped
positively
when local governments temporarily invest tax revenues in financial markets until the funds are needed, they becoe a ___ of loanable funds
supplier
the loanable funds theory categorizes all market participants (consumers, business, governments, and foreign participants ) as net ___ or ___ of funds.
suppliers ; demanders
short term securities have more active secondary market and hence are more ____ than long term securities
Liquid
when financial market participants have ___ near term spending needs, the supply of loanable funds at every interest rate is
Lower ; higher higher ; lower
the ___ the level of actual or expected inflation, the ___ the level of interest rates
Lower; lower higher; higher
a series of equal cash flows received at fixed intervals over an entire finite investment period are
annuity payments
the difference between the nominal rate quoted on a security and the rate quoted on a treasury security with similary characteristics is called the
credit risk premium default risk premium
businesses demand funds for which of the following reasons?
to invest in long term fied assets like plant and equipment to satisfy short term working capital needs for investory and recievables