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 provide and/or subsidisation - through borrowing from lenders by output bonds. In the UK government bonds are cognise as prosperous march on securities and are referred to as gilds. Responsibility for them is managed by the Debt focal point Office (DMO) which is an executive agency of the Treasury.. They revalue 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 yield, known as the coupon in the gilt edged market. all the same the coupon isnt a perfect guide to the cheer charge per unit the Government had to pay when they issued the gilt because stocks are sometimes issued at a premium or discount o their equating value. The prices of gilts are determined primarily by stake rate but are also influenced by intelligence operation and technical influences.          Firstly let us examine the payoff of a change in interest rates on the price of gilts. This is best explained by a theoretical fancied character involving 3 different stocks#. Suppose that in 2001 the DMO unflinching to issue 3 stocks with the following details#:         Price         Income turn back         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% 2025          100         4.5% !         4.5% Suppose that a form later(prenominal) the UK economy has began to deteriate and that theres evidence of inflation growing, and the US economy, a weigh 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 expert essay, order it on our website: BestEssayCheap.com

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