California Clinics Essay Example | Topics and Well Written Essays - 1250 words

California Clinics - Essay ExampleThis will in turn increase the required rate of return.ii) clock Preference for Consumption If people choose to consume their income now rather to save, this will reduce the supply of coronation detonating device oblivious to the demand of investing capital at that time. In this conditions, the firms will find lesser sources lending enthronization capital and they try to attract more investment capital by offering them higher lodge in rate and this will again increase the required rate of return from the investment following the higher rate of stakes that these firms will be offering. Similarly, if people decide to save now and spend later, this will lead excess supply of investment capital in the market. The firms present will be able to obtain investment capital at lower pass judgment and will enjoy decreased liaison expenses. Some pick ups that were non feasible because of high interest rates in the market will now become feasible and firms will borrow more. However, due to excess investment capital available in the market, the interest rate will decrease and so as the required rate of return.iii) Risk Risk requires compensation and in any case it will affect the interest rate of capital of investment. If the risk of an investment is high, then the investors will only be willing to invest in that project at very high interest rates. ... iii) Risk Risk requires compensation and likewise it will affect the interest rate of capital of investment. If the risk of an investment is high, then the investors will only be willing to invest in that project at very high interest rates. If the risk of a definite project is low, then the investors will be investing in that project at lower rates of return and interest rate. Hence, we can develop a relationship between interest rates and the risk of a project. These two variables are directly related with risk being the independent variable and interest being the variable dep ended upon risk factor of a project. Any increase in the risk factor is going to increase the interest rate or required rate of return of a project. Similarly, if the risk factor of an investment is low, so will be the interest rate. This clearly shows that risk requires compensation and interest rates vary depending on the risk factor of a project. A logical explanation to this is the fact that very few people are concerned in investing in highly risky project fearing that they may lose out their money. As a result, the supply on investment capital is very low for these projects and vice versa. Inflation Inflation reduces the purchasing power of money. It erodes the purchasing power of people if their money is not invested into projects yielding interest rates which are at least equal to the going rate of inflation. If the interest rate earned is less that inflation, then you are losing out the real order of your money. This means that it wont be able to buy in the future, as much as it buying now. This is a dangerous situation for investors as they are go about with a situation in which the real value of their assets is decreasing. In times of inflations,