Notice what happens when we look at the market in this way. Buyers have become sellers, and sellers have become buyers. Borrowers are sellers: they sell the promise to pay. Lenders are buyers: they purchase the promise to pay. If we are looking at the same group of buyers and sellers as before, then the current equilibrium price of this asset would be $100. The nominal interest rate and the nominal rate of return defined through these two markets must be the same. If not, there would be an arbitrage possibility. Imagine, for example, that the interest rate is 5 percent but the price of the asset is $90. In this case, the rate of the return on asset is 11090−1, which is 22.2 percent. So you could make a lot of money by borrowing at a 5 percent interest rate and then purchasing the promises to pay $110 at price of $90. If you could do this, so also could many major financial institutions—except that they would operate on a much larger scale, perhaps buying millions worth of assets and borrowing a lot in credit markets. So the demand for credit would shift outward, as would the demand for assets. This would cause the interest rate to increase and the asset price to increase, so the rate of return on the asset decreases. This would continue until the arbitrage opportunity disappeared. In summary, we would say there is no arbitrage opportunity when the nominal rate of return on asset = nominal interest rate. The rate of return on the asset, in other words, is equivalent to the interest rate on the asset. Equivalently this means that
price of asset = repayment amount
1 + nominal rate of return on asset
= repayment amount
nominal interest factor .
In the second line we replaced (1 + nominal interest rate) with the nominal interest factor. The two are equivalent, but sometimes we find it more convenient to work with interest factors rather than interest rates. The argument that we have just made should seem familiar. It is analogous to the argument for why there cannot be distinct dollar-euro and euro-dollar markets; they are just ways of looking at the same asset. Likewise, we can think of the sale of any asset as equivalent to borrowing, while for any example of credit we can also think of there being an underlying asset. Different Assets Very often economists and others talk about “the” interest rate, as if there were just a single asset in the economy. In fact, there are many different assets that you could buy with your $100, each with an associated interest rate.
Why Work with Us
Top Quality and Well-Researched Papers
Our writers have been trained on how to handle papers placed by our clients. The writer must read and understand before embarking on writing the papers. In case of any issue that needs clarification, writers are encouraged to ask the client or support.
Professional and Experienced Academic Writers
Our team comprises of the best writers and editors. We do thorough vetting during recruitment to make sure that our writers have the knowledge and experience we aspire in the team.
Free Unlimited Revisions
Our aim is to give the client the best outcome. If for some reason you are not satisfied with the wok done, you can ask the paper to be revised or rewritten. This will be done to your satisfaction with no extra charges.
Prompt Delivery and 100% Money-Back-Guarantee
We have writers who work round the clock. This helps in making sure that all our clients’ papers are delivered on time. If we have issues with the deadline, we will ask for extension. If its not possible, the money is fully refunded.
Original & Confidential
Our clients’ confidentiality is highly respected. We can never disclose our clients’ details to third parties. In the same regard, we strive to give our clients 100% original papers. We do not tolerate plagiarism from our writers.
24/7 Customer Support
Clients can reach us any time of the day, and any day of the week. There is a live chat, email or phone numbers to help in ease of communication.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
You should never be worried about your papers even in the middle of the night. Our team will work round the clock to deliver.
We have an able team that can deliver your work in the shortest time possible. The academic level or the type of work should never be a hindrance. Our highly competent support team is always around (24/7) to give you any assistance you may need.
Admission Essays & Business Writing Help
Do you need to be admitted in your dream institution but find it challenging to write an admission essay? Our team is in a position to write the best letter that will guarantee you an admission. We do as well write the best business proposals and reports.
Writing can be fun and enjoyable when everything has been done right. Writing is not just enough without proper editing and proofreading. We have a team of editors that ensure everything falls in place, whether its issues to do with grammar or referencing styles.
Once the paper has been done and submitted, that is not the end of it. You can always ask for amendment or improvement if you feel something has not been done right. Our team of writers and editors will gladly assist you to your satisfaction. Revision is free of charge.