BEC Financial Management review 3

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Joens1313
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300127
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BEC Financial Management review 3
Updated:
2015-04-06 23:27:31
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BEC Financial Management review
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BEC Financial Management review 3
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  1. What is interest?
    The price for borrowed capital is interest.
  2. What is the price for borrowed capital?
    Interest
  3. What is the price for equity capital?
    Dividends and capital gains.
  4. In terms of interest rates, what is the time
    preference for consumption?
    • Consumer’s time preferences establish the quantity of consumption they are willing to
    • defer at different levels of interest offered by borrowers.
  5. In terms for interest rates, what is the default
    risk?
    • The default risk , or risk that a borrower will
    • not pay the interest  or principal
    • affects the interest rate.
  6. To offset the impact of inflation, investors
    require an ---------------------------- added to the rate they would have
    charged in the absence of inflation.
    • To offset the impact of inflation, investors
    • require an inflation premium added to the rate they would have charged in the
    • absence of inflation.
  7. A security that can be converted to cash on
    short notice is -----------------------.
    • A security that can be converted to cash on
    • short notice is highly liquid.
  8. The longer the term of the bond,
    --------------------------, and thus, the greater the maturity risk premium.
    The longer the term of the bond, the greater the risk, and thus, the greater the maturity risk premium.
  9. The ------------ the term of the bond, the
    greater the risk, and thus, the greater the maturity risk premium.
    The longer the term of the bond, the greater the risk, and thus, the greater the maturity risk premium.
  10. The longer the term of the bond, the greater the risk, and thus, the greater the ------------- premium.
    The longer the term of the bond, the greater the risk, and thus, the greater the maturity risk premium.
  11. The effect of a --------------------------------
    is to have higher interest rates on long term bonds as opposed to comparable
    short term bonds.
    • The effect of a maturity risk premium is to have higher interest rates on long term bonds as opposed to comparable short term
    • bonds.

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