Examine the effects of a change in interest rates on the price of equity and Government bonds. Briefly explain what other major factors affect the price of equity. 1911 Words

        Governments of countries finance many of their activities - for example public and merit goods furnish and/or subsidisation - through borrowing from lenders by proceeds bonds. In the UK government bonds are cognize as halcyon march on securities and are referred to as flamboyants. Responsibility for them is managed by the Debt focal point Office (DMO) which is an executive agency of the Treasury.. They declare oneself on debt bug outs and swot up the auctions of gilts on behalf of HM Treasury. As with all forms of assets gilts pay a annual allot, known as the coupon in the gilt edged market. moreover the coupon isnt a perfect guide to the cheer compute the Government had to pay when they issued the gilt because stocks are sometimes issued at a premium or discount o their par value. The prices of gilts are determined primarily by stake grade but are also influenced by intelligence mental process and technical influences.       Â Â Â Firstly let us examine the meat of a change in interest rates on the price of gilts. This is best explained by a theoretical assumed character involving 3 different stocks#. Suppose that in 2001 the DMO trenchant to issue 3 stocks with the following details#:         Price         Income rejoin         repurchase Yield Short-dated 4.5% 2003          deoxycytidine monophosphate         4.5%         4.5% Medium -dated 4.5% 20010         100         4.5%         4.

5% Long -dated 4.5% 2025          100         4.5% !         4.5% Suppose that a socio-economic class later(prenominal) the UK economy has began to deteriate and that theres evidence of inflation growing, and the US economy, a claim importer of our goods, is slumping and investors are demanding higher yields to compensate. If the DMO wanted to issue a raw(a) gilt at this point they would have to offer a yield of, for example 6%, to persuade investors to profane. Its clear that investors wouldnt buy the 3 stocks above at a... If you want to get a honest essay, order it on our website: OrderCustomPaper.com

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