Explain why interest rates change in the economy and the impact on the yield curve. Break down the determinants of market interest rates. Explain how changes in the yield curve affect the organization’s cost of financing.

Interest Rates

Organizations must obtain money to exist. Think about the balance sheet; assets equal liabilities (debt) plus equity (the money contributed by the owners). Even equity financing has a cost; no one would want to invest in a company if they were not going to get a return. Organizations must provide the minimum return that investors require to let the organization use (i.e. borrow) their money. Investors compare the returns from other potential investments when deciding where to put their money.

The paper describing the yield curve and interest rates.
Ensure the following points are addressed:
Define the yield curve
Explain why interest rates change in the economy and the impact on the yield curve.
Break down the determinants of market interest rates.
Explain how changes in the yield curve affect the organization’s cost of financing.