If interest rates in the economy are high, then a firm would use a MARR higher than current interest rates, and if interest rates are low, The MARR may be lower TRUE OR FALSE

Q: If a MNC has short-term financing need, the ideal currency to borrow should have low interest rate…

A: Interest rate effects the exchange rate of currency and exchange rate would change depends on change…

Q: An upward-sloping yield curve

A: An upward sloping yield curve: may reflect the confounding of the liquidity premium with interest…

Q: Is default risk premium likely to be pro-cyclical (i.e., increasing during economic expansion) or…

A: The difference between the company's actual interest rate and risk free rate within the industry is…

Q: Explain whether you agree or disagree with the following statement:

A: Interest rate risk is the risk arising from the fluctuations in the interest rates. It depends…

Q: firm with heavy long-term debt can benefit during inflationary times, as debt can be repaid with…

A: Long term debt:Long-term debt refers to a financial obligation that is due for more than one year.…

Q: Which of the following is a true statement regarding the future worth of a single investment…

A: Introduction: This question is related to the concept of time value of money. The time value of…

Q: reasury rates are expected to fall during the life of an investment. Which of the following will…

A: Treasury rates are anticipated to drop throughout the lifetime of an investment, exit cap rate might…

Q: Suppose that C is the price of a European call option to purchase a security whose present price is…

A: As a first step, let's assimilate the information given to us: Current stock price is S C is the…

Q: Leverage. Suppose that a firm has both floating-rate and fixed-rate debt outstanding. What effect…

A: The question is based on the concept and analysis of financial ratios. The financial ratio…

Q: If interest rates increase because of a previously unanticipated inflation rate risk?…

A: Answer -  If interest rates increase because of a previously unanticipated inflation rate risk as a…

Q: The main ideas of Keynesian economics are: a-the importance of the long run over the short run, and…

A: Journal entries are the building blocks of accounting, which is the act of recording the economic…

Q: The normal yield curve states that long-term investors are compensated for which risk? A Maturity…

A: A normal yield curve is upward sloping. We need to find out compensation towards which risk,…

Q: When the yield curve is upward sloping. banks are rewarded for investing more in short-term…

A: Here's why:Bond yields rise with longer maturities according to an upward-sloping yield curve. Put…

Q: If a firm with a positive NPV refunding project delays refunding and interest rates rise, the firm…

A: Net present value is the value of a project in today’s term. It helps to make decisions better by…

Q: Interest costs for short-term debt are generally lower than interest costs for long-term debt…

A: Companies and people use debt to tide over liquidity problems or to get access to funds to buy…

Q: Let rf be the risk free rate of interest. E[r e ] be the expected return of some risky asset.…

A: CAPM: CAPM is also called as Capital assets pricing model. Factors affecting CAPM return are risk…

Q: Since we usually assume positive interest rates in time value analyses, the present value of a sum…

A: In time value analysis, positive interest rates are typically assumed. When calculating the present…

Q: increased change in value that occurs because longer maturity investments are affected more by…

A: Bonds are a source of investment for investors and bonds are paid an annual coupon and par value is…

Q: Explain the challenges policymakers face when interest rates are very low.

A: An interest rate is referred to as an amount that is charged over as well as above the principal…

Q: What kind of interest rate swap would a commercial bank with a negative re-pricing gap (that is,…

A: We have to find out an appropriate kind of interest rate swap for a commercial bank with a negative…

Q: If the yield curve is downward sloping, what would the expectations theory suggest about expected…

A: Yield Curve: It represents a plotting of interest rates of bonds with equal credit & different…

Q: Classify each of the following in terms of its effect on interest rates (increase or decrease): I.…

A: Interest ratesInterest rate is referred to as the amount a lender charges to a borrower and is a…

Q: Typically, short-term interest rates: А. are more volatile than long-term interest rates В. are less…

A: Short-term interest rates are usually averages of daily rates, calculated as a percentage. The…

Q: simple payback period will be less than the payback period considering compounded interest rate (for…

A: 1. Simple Payback Period: The simple payback period is the time it takes to recover the initial…

Q: When estimating cost of debt, the firm should not simply use current short-term rates because these…

A: When estimating the cost of debt, firms typically should not simply use current short-term rates…

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.