Principles of Finance Chapter 8: DQ1 DQ1: What is the interest rate and how is it determined? Interest rate is the basic price that equates the demand & the supply of loanable funds in the financial market. Interest rates are determined by three forces. The first is the Federal Reserve, which sets the Fed funds rate. That affects short-term and variable interest rates.
Aug 22, 2015 · View Homework Help - Homework Ch 8 from FIN 100 FIN 100 at Strayer University. Chapter 8: DQ1 What is the interest rate and how it is …
The interest rate is the basic price that equates the demand for and supply of loanable funds in the financial market. The interest rate is determined by an interest rate that clears the market by bringing the demand by borrowers for funds in equilibrium with the supply by lenders of funds.
An interest rate is a rate which is charged or paid for use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Federal Reserve Board policies. For example, if a lender charges a customer $90 in a year on a loan of …
The loanable funds theory used to explain the level of interest rates holds that interest rates are a function of the supply of: loanable funds and the demand for loanable funds. The risk-free interest rate is composed of: a real rate of interest and an inflation premium.
decrease. An increase in the supply for loanable funds, holding demand constant, will cause interest rates to: decrease. A decrease in the supply for loanable funds, holding demand constant, will cause interest rates to: increase.
Treasury security. A maturity risk premium at a certain point in time may be expressed by comparing the interest rates on: a Treasury bill and a Treasury bond.
The basic sources of loanable funds are: current savings and the creation of new funds through the expansion of credit by depository institutions. Sources of loanable funds do not include: federal deficits. A basic source of loanable funds is: current savings that flow through financial institutions.
As interest rates rise, the prices of existing bonds will: fall. As interest rates fall, the prices of existing bonds will: rise. The liquidity preference theory holds that interest rates are determined by the: investor preference for short-term securties. In an inflationary period, interest rates have a tendency to: