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Explain the components of the expected nominal rate

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Reference no: EM133000766

These are three questions about debt and interest rates.

Problem a. Suppose the interest rate on an amount you borrowed is 8% APR with monthly compounding. What is the present value of this five-year loan if you are paying $1000 every six months for five years?

Problem b. Explain the components of the expected nominal rate of interest represented in terms of risks to the investor, otherwise known as the cost of capital to the borrower. Be sure to discuss all the categorical risks discussed in class.

Problem c. Explain why bond interest rates and bond prices are inversely related in simple terms.

Reference no: EM133000766

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