Define the following terms:

11/18/97

Click here to start

Table of Contents

Define the following terms:

Three Primary Ways Capital Is Transferred Between Savers and Borrowers

Organized Exchanges vs.Over-the-Counter Market

What four factors affect the cost of money?

k = k* + IP + DRP + LP + MRP.

Premiums Added to k* for Different Types of Debt

What is the “term structure of interest rates”? What is a “yield curve”?

What 3 theories are used to explain the shape of the yield curve?

1. Expectations

2. Liquidity Preference

3. Market Segmentation

Step 2: Find MRP based on this equation:

Yield Curve Examples

Assume your salary is $45,000, and you received $3,000 in dividends. You are single, so your personal exemption is $2,500 and your itemized deductions are $4,650.

Assume a corporation has $100,000 of taxable income from operations, $5,000 of interest income, and $10,000 of dividend income.