The Structure Of Interest Rates" – Coursework Example
The Structure of Interest Rates of the The Structure of Interest Rates For a business who wants to purchase a new home, the business should opt for a long term loan that is a 30-year mortgage instead of a 15-year mortgage. A long term loan with fixed rates is easier to pay compared to the shorter ones (Whitney & Glenn, 2009). Long term loans enable the borrowers to maintain a diversified asset portfolio. Long loans enable the purchaser to save a significant amount of money that should be paid as tax. Therefore long term mortgage enable the borrowers to save a lot of tax money in the entire period of servicing the loan. It is believed that one of the factors that make the prices to rise is the tax; therefore it would be prudent to have a long term mortgage to save the money that ought to have been paid as tax. A shorter mortgage will require high monthly paid as installments that would not be easy to come by compared to the long term that the period is long and the monthly installments is relatively small compared to shorter mortgages (Whitney & Glenn, 2009). Longer mortgages are even cheaper to pay during inflation therefore; the purchasers should opt for the longer term mortgages.
The structure of interest rates enables the investors to evaluate and determine the type of securities to invest their money in. the structures indicates the various yields that are offered in the market (Whitney & Glenn, 2009). The structures enable the investors to make efficient decisions on whether to invest in short term, medium or long term bonds. The business should consider rate of return he will get by investing $10,000 investment in debt securities (Whitney & Glenn, 2009). The rate of return enables the investor to calculate the viability of the investment. Another rate to be considered is the liquidity preference rates; this will enable the investor to determine the maturity of the investment in the security market. Finally, the investor should consider the investment rater risk that is involved by investing $10,000 in the security market. The interest rate enables the investors to calculate accurately and efficient the net interest margin of the investment (Whitney & Glenn, 2009).
Whitney, T. & Glenn, T. (2009). More Mortgage Meltdown: 6 Ways to Profit in These Bad Times. NY: John Wiley & Sons.