Debt is an important source of financial capital for households, companies, social impact organisations and governments. The associated interest expenses can be a significant fixed cost. The associated financial leverage on the balance sheet can also add significant risk to equity (or wealth).

a) Imagine that you are a senior executive of a large organisation who is considering whether or not to raise a significant amount of debt finance to fund a new project. How could a deeper understanding of interest rates and their determinants help you to better determine how you finance the new project?