Illustrate the very important relationships between changes in interest rates and varying rates of prepayment?

Q: Explain why modified duration a better measure is than maturity when calculating the bond’s…

A: Modified duration is also known as volatility of bond. Ir indicates change in the price of bond with…

Q: Explain the difference between nominal, periodic, and effective interest rates.An understanding of…

A: Nominal interest rate is the simple interest on investments before taking inflation into account.

Q: o calculate the Internal Rate of Return, you need to know what interest rate to start with. True or…

A: Internal rate of return (IRR) is the rate at which NPV is zero

Q: Which one of the below most likely respresents the periodic receipts of interest? O the coupon rate.…

A: Periodic payments means fixed amount paid regularly to the investor. Example interest amount on…

Q: Explain The Need for an External Interest Rate?

A: There is a strong need for the external interest rate because it helps in making financial…

Q: When using the interest tables, the needed interest rate is determined from the intersection between…

A: Interest rate tables show the values of present value/future value factors for $1 investment at a…

Q: Explain Interest Rates and Inflation Expectation?

A: An interest rate is the measure of cash a bank or creditor charges for right of entry to cash. The…

Q: Which factor determines how much will be saved at different interest rates?

A: The time preference of the consumer for consumption helps in determining the amount that will be…

Q: Explain the difference between the unbiased expectations theory of the term structure of interest…

A: There are different theories that describe how the interest rates are set.

Q: Please explain the difference between the terms interest rate and required return by defining each.

A: The amount which is charged by the lender to the borrower in order the use assets is known as the…

Q: What effects do relative inflation rates have on relative interest rates?

A: Relative Inflation Rates can be defined as the rates of inflation and exchange rates established…

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: Which tend to be more volatile, short- or long-term interest rates? Long-term interest rates…

A: short term interest rates are more volatile than long term interest rate.

Q: why modified duration is a better measure than maturity when calculating a bond’s sensitivity to…

A: Macaulay duration is the weighted average term of maturity of the cash flow generated through the…

Q: How can we determine the Net Present-Worth Amounts at Varying Interest Rates?

A: Answer: Net present worth is an estimation method applied to various time intervals when cash flows…

Q: What is the Relationship between Changes in Interest Rates, Investor Returns, and “Going-In”Cap…

A: The question is based on the concept of relation between change in interest rate and its impact on…

Q: ond interest rates may differ from market interest rates because:

A: Bonds are priced by discounting future cash flows. Future cash flows include coupons and par value…

Q: Illustrate with examples , that Interest rate is equivalent to the savings rate from the deposits?

A: Interest received It is the amount that is received to a person for the investment made. A rate at…

Q: What does the term structure of interest rates indicate?

A: Interest is an additional amount which is received over the investment amount during the period. It…

Q: What do you think about the interest rate i for

A: A recession refers to the time period which is affected by a temporary economic decline during which…

Q: Explain risk-free nominal rate of interest rate

A: This is the raw rate of return which does not take inflation into consideration. This is the rate…

Q: What is duration gap model? Explain the concept of duration. How duration measure can be used to…

A: Duration gap measures the mismatch between the duration of assets and liabilities held by a…

Q: Explain Extended Method for Interest Rate Swap Accounting.

A: Introduction Interest Rate Swap, an important type of derivatives, is the contract between 2 parties…

Q: Can the actual real rate of interest be negative? When ? Can the expected real rate be negative?

A: Yes, the actual real interest rate can be negative. This can happen when the actual inflation rate…

Q: How are interest rate risk and reinvestment raterisk related to the maturity risk premium?

A: The maturity risk premium is the premium for the hazard created amid an asset's life by conceivable…

Q: Summarize the varying effective interest rates per payment period under compounding frequencies?

A: The varying effective rate per payment period in case of compounding frequencies as under: When…

Q: When the quantity of a financial security supplied or demanded changes at every given interest rate…

A: Explanation: Interest rate shifts (i.e., the price of financial capital) are creating a shift along…

Q: INTEREST RATE RISK  In the context of the repricing gap model, what is the spread effect? How does…

A: The repricing gap model is based on the consideration that a bank's exposure to interest rate risk…

Q: It's it true? The factors are useful for all types of interest rates, whether nominal or effective,…

A: The nominal interest rate or coupon rate, is the actual price borrowers pay lenders, without…

Q: Explain Interest Rates and Risk?

A: Interest Rate: Interest rate is the percentage of interest charge by a lender on his principal…

Q: Discuss the relative volatility of short- and long-term interest rates.

A: Short-term interest rates refer to the rates that are assigned for a period of 12 months or less.…

Q: How VAT affects the interest rate?

A: Solution-Value Added Tax  A value-added tax (VAT) is a consumption tax placed on a product whenever…

Q: What is the relationship between forward rates and the market’s expectation of future short rates?…

A: Forward rate implies the yield on the bond expected by investors in future. It is the calculated…

Q: How does the interest rate adjust?

A: Interest rate levels are based on two factors- supply and demand of credit: an increase in the…

Q: How are Effective Interest Rates calculated?

A: Effective interest rate is the interest earned on the investment or saving account.

Q: What are the forward rates of interest? How are they determined? What do they have to do with…

A: Forward rates of interest has basis as expectation of future interest rate that are implied in the…

Q: What makes it so difficult to correctly forecast interest rate changes?

A: Interest rates are used to understand price and value of money. Interest rate is the cost incurred…

Q: Define the term break-even interest rate?

A: The question is to define break even interest rate. The concept of  Break even interest rate is…