14-2Wv. Negative real interest rates occur when the rate of inflation exceeds the rate of interest on
Question:
14-2W\v. Negative real interest rates occur when the rate of inflation exceeds the rate of interest on fixed-income financing instruments like corporate bonds, government bonds, and u.s.
Ueasury bills. Negative real rates of interest generally are associated with slow periods of economic growth. During such periods corporations usually prefer to raise external cash via new debt issues rather than equity issues. Two Web sites can give you insights into whether current real rates of interest are negative or positive. Visit www.federalreserve.gov to check on the H.15 Selected Interest Rates report to assess nominal interest rates. Then check on www.stats.bls.gov to assess several clifferent inflation inclices. Estimate the level of the real rate of interest on the lO-year Treasury note (and any other maturity period that excites you), using more than one inflation index. Hint: The consumer price index and producer price index for finished goods are two commonly used indicators looked at by security and financial analysts.
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Financial Management Principles And Applications
ISBN: 9780131450653
10th Edition
Authors: Arthur J. Keown, J. William Petty, John D. Martin, Jr. Scott, David F.