Read through the below post and provide any on of the following: APA format 250 Words.

  

Read through the below post and provide any on of the following: APA format 250 Words.

.Ask a probing question, substantiated with additional background information, evidence or research.  

· Share an insight from having read your colleagues’ postings, synthesizing the information to provide new perspectives.  

· Offer and support an alternative perspective using readings from the classroom or from your own research.  

· Validate an idea with your own experience and additional research. 

· Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.

Post:

Part 1:

An interest rate is a compensation for the service and risk of lending money.  In a simple term, it is the cost of borrowing money.  Because the Interest rate it keeps the economy moving by people to borrow, to lend and to spend the money.  But these interest rates always keep on changing, and different types of loans offer different interest rates.  It’s very important to understand and know the nature of the Interest rate in the market while taking the loan.[1]

There are several factors that influence interest rates in general.  Some of them are, Inflation – Inflation is directly proportional to the interest rate.  Higher the inflation higher the interest rate.  This is mainly due to the lenders will demand higher interest rates as compensation for the decrease in purchasing power of the money they will be repaid in the future.  Government – The Government will have also decide the interest rate.  The federal funds rate that institutions charge each other for extremely short-term loans, affects the interest rate that banks set on the money they lend. That rate then eventually trickles down into other short-term lending rates.  It is inversely proportional to the interest rate.  When the Government involves in more open market transactions the interest rate will decrease.  Supply and Demand – It is the most important, complex and difficult to master it.  An increase in the demand for money or credit in the market will raise interest rates and a decrease in the demand for credit in the market will decrease the interest rate.  Vice-versa to this, an increase in the supply of credit line will reduce interest rates while a decrease in the supply of credit line will increase them.  Credit line available to the economy is decreased as lenders decide to defer the repayment of their loans. For example, when deciding to postpone paying this month’s credit card bill until next month or even later will not only increase the amount of interest to pay but also decrease the amount of credit line available in the market.  This will lead into increase the interest rates in the market. [1]

According to my personal experience, my current company is most sensitive to the Supply and demand.

Now, let’s see what are the contemporary factors that seem to be impacting your industry today.  Some of them are, The International Effect – Otherwise known as the International currency effect.  The value of a country’s currency can play an important role in how markets will do within that country.  If a country’s currency is weak, this will deter investment into that country, as potential profits of that company will reduce because of this.  Higher the demand in the country’s currency means that country market is in very good shape.   Supply and Demand – The supply of credit is increased by an increase in the amount of money made available to the customers.  Let’s consider an example when opening an account in a bank and deposit money in that account.  For checking there is no interest rate whereas for Savings account bank will give you some interest rate.  All the money in the account the bank will lend that money to others, thus keeping the money flow.  The more banks can lend the money, the more credit line is available to the market.  And as the supply of credit increases, interest rate also decreases.

Part 2:

From the first YouTube link, I have learned about Stock Valuation.  Stock Price is always the function of next year dividends.  I have also learned about Dividend discount.  Po = D/Re where Po = Stock Price, D = Dividend, Re = Return requirement.

Form the second video, I have learned about Discounted Cash Flow.  The risky the business the higher the rate will be.  In this video, if a company invest $100 million in 1st year, and same in the next 4 years.  The cash value of the first year is not the same as the following years.  Due to inflation, the cash value will be eroded through the years.

And from the final video I have learned about Risk, Return and Capital Asset Pricing Model (CAPM). 
Percentage Return = Capital Gain Yield + Dividend Yield.
I have also learned about Volatility.  
Required Return = Risk Free rate + Risk Premium. 
CAPM is combing risk Premium and beta.  A measure of beta for any giving asset will vary depending upon how it’s calculated.  Extra reward for taking more risk.  An asset risk premium is e additional compensation required above the risk-free rate for holding the asset.  CAPM will tell how much return will require for holding the asset relative to the risk-free rate and market portfolio.  [3]

These are the things I have learned from Part-2 YouTube Videos.

References: Forces Behind Interest Rates, by Reem Heakal, Retrieved from https://www.investopedia.com/insights/forces-behind-interest-rates/  Factors Influencing Interest Rates, Retrieved from https://info.finweb.com/banking-credit/factors-influencing-interest-rates.html Retrieved from https://www.youtube.com/watch?v=3BIIiUyr3-w, https://www.youtube.com/watch?v=DSn1HThfb5w, https://www.youtube.com/watch?v=jfcRUzKZZE8, https://notendur.hi.is/ajonsson/kennsla2008/stock_valuation.pdf

 

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