Foundation of Financial Management

Assignment 1: Interest Rates and the Cost of Capital

General Questions:

Respond to the following questions thoroughly, in 150–300 words for each question. Use your textbook as your first and major reference.

1. Compare long-term instruments and short-term risks, in terms of the various types of risk to which investors are exposed. Explain your answers.
2. What methods can be used by the FED to influence interest rates? Are these methods effective? Use examples where appropriate.
3. If a company is going to finance a project entirely with retained earnings, what would be the cost of that capital? Why?