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Q. What is Purchasing Power Risk?
Variations in the returns are caused also by the loss of purchasing power of currency. Inflation is the reason behind the loss of purchasing power. The level of inflation proceeds faster than the increase in capital value. Purchasing power risk is the probable loss in the purchasing power of the returns to be received. The rise in price penalizes the returns to the investor, and every potential rise in price is a risk to the investor. The inflation may be demand-pull or cost-push inflation.
In the demand-pull inflation, the demand for goods and services are in excess of their supply. At full employment level of factors of production, the economy would not be able to supply more goods in the short run and the demand for products pushes the price upward. The supply cannot be increased unless there is an expansion of labor force or machinery for production. The equilibrium between demand and supply is attained at a higher price level.
The cost-push inflation, as the name itself indicates that the inflation or the rise in price is caused by the increase in the cost. The increase in the cost of raw material, labor and equipment makes the cost of production high and ends in high price level. The producer tries to pass the higher cost of production to the consumer. The laborers or the working force try to make the corporate to share the increase in the cost of living by demanding higher wages. Thus, the cost push inflation has a spiraling effect on price level.
Securitization refers to conversion of illiquid assets to liquid assets by converting longer duration cash flows into shorter duration ones. Securitization denote
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Due to the complexity of the tasks involved in many projects, communication of responsibility for those tasks is often helped by means of graphical planning techniques.
how do we get the pvif of a perpetuity
The value of node is determined using a methodology called backward induction. The value at any node depends on the future cash flows; therefore, we need to start from
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Two years ago, Randburg Ltd needed to accumulate a total of R250000 by the end of 5 years to acquire new imported machinery. To do so Randburg Ltd makes quarterly-annual deposits i
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