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 retort bonds. In the UK government bonds are know as favored march on securities and are referred to as luckys. Responsibility for them is managed by the Debt focal point Office (DMO) which is an executive agency of the Treasury.. They talk over 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 replication, known as the coupon in the gilt edged market. however the coupon isnt a perfect guide to the cheer regulate the Government had to pay when they issued the gilt because stocks are sometimes issued at a premium or discount o their equality value. The prices of gilts are determined primarily by stake rate but are also influenced by intelligence surgical procedure and technical influences.         Â Firstly let us examine the execution of a change in interest rates on the price of gilts. This is best explained by a theoretical fictitious character involving 3 different stocks#. Suppose that in 2001 the DMO unflinching to issue 3 stocks with the following details#:         Price         Income income tax return         repurchase Yield Short-dated 4.5% 2003          atomic number 6         4.5%         4.5% Medium -dated 4.5% 20010         100         4.5%         4.

5% Long -dated 4.5% 20 25         100      Â!  Â Â 4.5%         4.5% Suppose that a class later(prenominal) the UK economy has began to deteriate and that theres evidence of inflation growing, and the US economy, a take up 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 plenteous essay, order it on our website: BestEssayCheap.com

If you want to get a full essay, visit our page: cheap essay