"• Interest Rate: It is the price that the borrowers must pay to lenders to obtain the use of money for a period of time. It is determined by the forces of demand and supply in the financial markets. • Loanable Fund Theory: It combines the real and monetary factors as determinants of interest rate • Determinants of Nominal Interest Rates: NI = RI + IP + RP Where, NI = Nominal interest rate RI = Real interest rate IP = Inflation premium RP = Interest rate risk premium • Determinants of general Structure of Interest Rates: Default Risk Call Risk, Liquidity or Marketability, Tax Status • Traditional Theories of the Term Structure: Expectations Theory: The term structure of interest rates reflects financial market beliefs about future interest rates. Market Segmentation Theory: Debt markets are segmented by maturity, so interest rates for various maturities are determined separately in each segment. Maturity Preference Theory: Long-term interest rates contain a maturity premium necessary to induce lenders into making longer term loans. Source:http://in.docsity.com/en-docs/Interest_Rate_-_Security_Analysis_and_Portfolio_Management_-_Solved_Quiz_"
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