What is the price paid to borrow debt capital called?
What are the two items whose sum is the cost of equity?
What four fundamental factors affect the cost of money?
What role do interest rates play in allocating capital to different
potential borrowers?
What happens to market-clearing, or equilibrium, interest rates in a
capital market when the demand for funds declines? What happens
when expected inflation increases or decreases?
How does the price of capital tend to change during a boom or a
recession?
How does risk affect interest rates?
If inflation during the last 12 months was 2 percent and the interest
rate during that period was 5 percent, what was the real rate of
interest? If inflation is expected to average 4 percent during the next
year and the real rate is 3 percent, what should the current rate of
interest be? (3%; 7%)
