Credit references have to be checked, papers have to be filled out and filed, and so on.
The larger the loan, the lower the interest rate.
We assumed that there was no inflation.
The anticipated rate of inflation is taken into account when calculating the market rate of interest.
No inflation is today's dollars.
Everyone will anticipate the inflation rate if it goes to 4 percent a year.
The rate of interest will go up to 9 percent if the rate of inflation goes up.
If the interest rate did not rise to 9 percent, the principal plus interest earned at 5 percent would have a negative effect on purchasing power in the future.
You can expect high nominal rates of interest in periods of high inflation.
We talked about the price system in Chapter 4.
A price that allocates credit to consumers and businesses is called interest.
An investment with a rate of return greater than the market rate of interest in the credit market will be undertaken, given the unrestricted market for loanable funds.
If the expected rate of return on the purchase of a new factory or intellectual property is 10 percent, the investment project will proceed.
The project would not be undertaken if it had an expected rate of return of less than 4%.
The interest rate allocates funds to industries with the highest risk-adjusted returns.
The interest rate allocates real physical capital to various firms for investment projects, and it is important to realize that the interest rate performs the function of allocating financial capital.
Businesses incur large costs today but don't make a profit until some time in the future.
They have to be able to compare their investment cost with their future profits.
The present and the future are linked by interest rates.
If you have to pay $105 at the end of the year when you borrow $100, that 5 percent interest rate gives you a measure of the premium on the earlier availability of goods and services.
If you want to have things today, you have to pay a 5 percent interest rate.
Depending on the market rate of interest, or the rate of interest that you could earn in a savings account, that's what it is.
One year from now, the value of a future amount will be received.
The equation is represented as a point in the future.
$100 will accumulate to $105 at the end of one year with a market rate of interest.
The present value of $105 one year from now, using a rate of interest of 5 percent, is $100.
The formula for figuring out the worth of dollars to be received in the future can now be determined.
The present value of $105 to be paid or received two years is discounted at an interest rate of 5 percent per year compounded annually.
A savings account with 5 percent per year compounded interest would give you 105 in two years.
The present value of $1 will be received in future years at var ious interest rates.
Why did a number of U.S. corporations suddenly report significant reductions in sums back to present value?
On March 24, 2010, President Obama signed the new health care legislation and Congress passed the health care program.
The new law reduced the amount that com panies' discounted present value of anticipated after-tax profits can deduct from their federal income taxes.
The answers can be found on page 482.
The price of credit is interest.
During periods of high inflation, the rate of interest will be relatively high.
It occurs in the future when the discount rate is greater.
The Dutch East India Company raised financial capital by selling shares of its future profits to investors.
The company issued notes of indebtedness, which involved borrowing funds in return for interest paid on the funds, plus eventual repayment of the principal amount borrowed.
Some of the company's revenues were used to pay the interest and principal on its loans.
Some of the profits were paid to shareholders in the form of dividends.
The company reinvested some of the retained money.
The methods of financing used by the Dutch East India Company four centuries ago are still used today.
If you own 100,000 shares of the company's stock, you will have future profits.
You can cast 1 percent of the votes on such issues if you own 1,000 shares.
If you give up your voting rights, you will get preferential treatment in the payment of dividends.
Funds lent to the firm are returned in the form of bonds.
The coupon payments annual coupon payment, plus a lump-sum represent interest on the amount borrowed by the firm, and the lump-sum payment at the bond's maturity date.
The amount originally borrowed by the firm is usually equal to the amount at maturity of the bond.
Bondholders must be paid if the firm prospers or not.
Although sales of stock are an important source of financing for new firms, reinvestment and borrowing are the primary means of financing for existing firms.
Roughly 75 percent of new financial capital for corporations in recent years has come from reinvestment by established firms, which is an important source of financing.
Small businesses can't rely on the stock market to raise investment funds.
The "market for wheat" and the "market for labor" are concepts, not actual places.
The New York Stock Exchange and the New York Bond Exchange are both located in New York City.
In addition to the stock and bond markets in the United States, there are other stock and bond markets in London and Tokyo.
The process used on the New York Stock Exchange is representative of the principles involved in conducting exchanges in these markets.
The New York Stock Exchange is still the most prestigious of U.S. stock exchanges.
This title has been held by the National Association of Securities Dealers Automated Quotations since the mid-2000s.
The market links 500 dealers and is home to nearly 4,000 stocks, including those of Microsoft, Intel, and Cisco.
At any point in time, tens of thousands, even millions, of people are looking for information that will allow them to forecast the future prices of stocks.
These people try to buy low and sell high.
The result is that all publicly available information that might be used to forecast stock prices gets taken into account by those with access to the information and the knowledge and ability to learn from it, leaving no predictable profit opportunities.
It occurs quickly because so many people are involved.
The view is that any information about specific stocks will have little value by the time it gets to you.
The theory that there are no predictable random component of stock price changes is less likely than small values, and nothing trends in securities prices that can be used to predict the magnitude or direction of a stock price change can be predicted.
The average quoted prices of average stock prices that prevailed in the 1920s are the same as today's average quoted prices of average stock prices.
The average inflation-adjusted prices of shares fail to account for inflation.
Past and current stock of stocks were traded 90 years ago.
Information that is not available to the general is in charge of new product development at the world's largest software firm, Microsoft.
Your friend says that the company's smartest programmer is a corporation.
You are aware that no one but your friend and the programmer is responsible for this.
You could make a lot of money by buying shares of Microsoft and selling them at a higher price when the new product is announced.
Stock trading based on inside information is illegal and can result in fines and even imprisonment.
If you have a way the Securities and Exchange Commission tries to prevent the use of inside stronger-than-average desire for a long vacation in a federal prison, you might be better information.
It is possible for people to influence stock or bond prices through the accidental release of inside information.
On October 31, 2001, the U.S. Treasury decided to stop issuing 30-year bonds.
The information of the bond's demise would be made public at 10 a.m., according to Treasury officials.
The officials told reporters in advance that they would have time to write stories at the later hour.
Everyone who attended the meeting was not checked for credentials.
After the news conference ended, the financial consultant called some of his clients and told them that the bond had ended.
Word of the Treasury's plans spread quickly.
Ten minutes before the formal announcement, 30-year bond prices rose in response to higher demand for existing bonds.
The Insider-Trading Regulator's Insiders have profited from insider trading.
The officials did not find any evidence of the SEC.
SEC employees did this recently.
The officials decided that members of the commission's own staff failed to report that it would be prudent to put into place the kinds of monitoring systems stock trades.
The SEC discourages staff members from trading the stocks of firms that it might bring charges against because it encourages them to do so.
The answers can be found on page 482.
The three primary sources of corporate funds make a higher-than-normal rate of return.
A can't predict changes in future stock prices based on legal claim and information about stock price behavior in the past.
The mayor of New York City has made travel expenses for homeless people in the city.
The answer is that the city faces an even higher homeless rate because of the present value of anticipated future expenses.
A typical homeless person is fed year after year.
Paying for the market price of a plane ticket that the city government will give to the homeless is the lower-cost alternative.
The city will cover hotel expenses even if they are unavoidable.
There must be relatives at the des tination who are willing to take the individual into their home.
The stock market crash of 1929 and the Great Depression of the 1930s have been compared to the downturn in average U.S. securities prices that occurred in the late 2000s.
Let's see if the comparison is reasonable.
The Great Crash of 1929 caused prices to go up.
The stock price downturn of the late 2000s began to resemble the Great Crash of 1929, as average share prices fell as dramatically as during the first 17 months.
The months dropped in September 1929.
If you had held stocks with a market value of $10,000 or less in price decline, it was likely that it would be compared to how 1929 crash in severity was.
The link is available at www.econtoday.com/ch21
The downturn that followed the Great Crash of 1929 has been shown to be less like the stock price meltdown of the late 2000s.
When most U.S. stock prices decline simultaneously, what can 2000s, the behavior of average prices of shares of stock, look like to most people?
The behavior of stock prices during the second half of the downturn was similar to the first half, which was similar to the Great Crash of 1929.
Section N: News had stocks with a market value of $10,000.