29. Which of the following statements are true? Statement I. An interest rate reflects the rate of return that a creditor receives when lending money, or the rate that a borrower pays when borrowing money. Interest rates change over time só does the rate earned by creditors who provide loans or the rate paid by borrowers who obtai loans. Statement I1. Interest rate movements have a direct influence on the market values of debt securities, such as money market securities, bonds, and mortgages. Statement II. Interest rate movements have an indirect influence on equity security values because they can affect the return by investors who invest in equity securities. Statement IV. Since interest rates have an influence on securities, participants in financial markets attomnt to n

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.