Assignment 1: Interest Rates and the Cost of Capital
Respond to the following questions thoroughly, in 150–300 words for each question. Use your textbook as your first and major reference.
- Compare long-term instruments and short-term risks, in terms of the various types of risk to which investors are exposed. Explain your answers.
- What methods can be used by the FED to influence interest rates? Are these methods effective? Use examples where appropriate.
- If a company is going to finance a project entirely with retained earnings, what would be the cost of that capital? Why?