When the real rate of interest is less than the nominal rate of interest, then: Multiple Cholce Inflation must be added to the nominal rate. Investment returns do not Increase purchasing power.

Q: Which one of these statements related to discounted payback is correct? Discounted payback does not…

A: Capital budgeting is an important part of strategic planning, as it helps companies identify and…

Q: If a security is underpriced (i.e., intrinsic value > price), then what is the relationship…

A: Intrinsic value of a security is the fair value based on the assessment of its fundamentals and…

Q: The pricing efficiency of financial markets can be expected to decrease if the cost of skillful…

A: Skilled financial manpower is very important in financial sector and valuation of assets in…

Q: An abnormal return occurs:   Only when the actual return is lower than the expected return. Only…

A: A market is said to be efficient, if intrinsic Value of the Security is equal to Market price of the…

Q: How is the compressed adjusted present value (APV) model different from the Modigliani and Miller…

A: Here is the Answer:

Q: Which of the following might discourage covered interest arbitrage even if interest rate parity does…

A: In a Covered interest rate arbitrage one uses favorable interest rate differentials to invest in a…

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 how inflation impacts capital budgeting analysis.  Why do we care? How is NPV impacted if…

A: Nominal rate and inflation rate are related to each other through real rate as shown below. Nominal…

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: The discounted payback method is better than the regular payback method because  The time value of…

A: Payback period is the amount of time required to recover initial investment. Regular payback period…

Q: The future value of a single sum   A. is generally larger than the present sum.   B. decreases…

A: The future value (FV) is the value of an investment or sum of money at a specified future date,…

Q: Discuss the argument that central banks should have a mandate for price  stability to prevent an…

A: The central bank is the banker's bank. It gives advice to the government Central bank assists in…

Q: Which one of the following statements is true? If there is no arbitrage than the expectations…

A: From the given statement we have to find the true statement: If there is no arbitrage then the…

Q: Why should we try to control inflation or should we let the market take care of lowering price…

A: Inflation is a general increase in the price of goods and services over some period of time. It has…

Q: According to the ,long-term interest rates are a function of expected short-term interest rates…

A: Essentially, the term structure of interest rates is the correlation between asset yields or…

Q: Which of the following is correct about the security market line (SML)? Investment projects that…

A: Security market line is the graphical representation of the values of stock against the risk…

Q: The concept that market forces in the macroeconomy can remedy a recession is referred to as:…

A: Monetary Policy- Monetary policy refers to the actions and communications of the central bank in…

Q: The static GAP focuses on monitoring net interest income in the long term.   Select one: True…

A: The Static GAP focuses on monitoring net interest income in the short term but it can be calculated…

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: Yields fall when prices rise, and vice versa." please explain

A: Yields have an inverse relationship with prices. Essentially yields are the rate which are used to…

Q: Is capital rationing always a bad thing? Explain

A: Capital rationing: Capital rationing is restriction bestowed upon new investments in the…

Q: All of the following statements regarding NPV are true EXCEPT: a. A positive NPV indicates the…

A: Net Present Value : It is the net of present value of cash inflow and present value of outflow.…

Q: How will a decrease in time preferences affect the loanable funds market?   A.   There will be an…

A: Decrease in time preferences tells us that individuals in the economy are more patient and more…

Q: Which of the following is not needed to compute the present value of an investment?a. The length of…

A: Present value:   Present value refers to the present worth of the money that is received in future…

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: According to the Capital Asset Pricing Model, higher investment risk, however it is measured,…

A: The CAPM model is being used for finding the required rates of returns of the security for given…

Q: An increase in money supply coupled with a disruption in the supply chain will often cause inflation…

A: Inflation refers to an increase in the general prices of goods and services in the economy. The…

Q: Will the actual realized yields be equal to the expected yields if the interest rates change? If…

A: Actual realized yield refers to the actual return earned by an investor on a bond or other…

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: O If general consensus is that interest rates are abnormally high and will soon fall, one would…

A: The correct answer for the above mentioned question is given in the following steps for your…

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: Which of the following statements is TRUE regarding the Fisher Effect? A. The Fisher Effect…

A: The objective of the question is to identify the correct statement about the Fisher Effect, which is…

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.