Business Finance Homework Help

Please respond to each student 

Student 1

Why does it make sense to say that the interest rate is the “price to rent money”? Please offer 2-3 examples of this principle from your personal financial outlook.

This makes sense because if you “rent” money to purchase a house, car or other item the interest rate is the cost to borrow that money. If you borrow $1,000 today, when you pay that money back or “return” it, you will owe more because of the interest rate. My wife and I own a home and when we purchased it several years ago the interest rate or “price to rent” was much higher than it is now. Therefore, our “rental” cost of our mortgage was higher and we were paying more money. When the interest rates started declining over the past two years, we decided to refinance our mortgage with a much lower interest rate, therefore a decrease to our overall cost. Interest rate or “price to rent money” is very important and a cost that many people overlook. With larger purchases, interest rate will greatly increase or decrease your overall costs. Additionally, we have seen interest rate changes in regards to student loans. With the pandemic, government student loans reduced their interest rates to 0%, therefore there is no cost to “rent” this money for the time being. This allowed more opportunity for people to pay back a greater portion of their loans without having to worry about a larger interest rate reducing the amount of money applied to the principal of the loan.

• In preparation for our simulation project, identify and discuss two of the major stock exchanges in the U.S. today. What types of funds are included in each? How do the exchanges compare in terms of size, volume, value, etc? Explain.

Two major stock exchanges in the U.S. today are the New York Stock Exchange (NYSE) and the NASDAQ. Publicly listed firm trade on both of these stock exchanges. When it was first made, the NASDAQ was mostly an over-the-counter dealer market and the NYSE was a specialist market. Now, both markets are primarily electronic markets (Bodie et al., 2022). The NYSE is larger than the NASDAQ. The NYSE is measured by the market value of listed firms, which can exceed 3 billion shares. The NASDAQ lists around 3,000 firms. 

Bodie, Z., Kane, A., & Marcus, A. J. (2022). Essentials of investments. McGraw-Hill.

Student 2

• Hello Class, 

Interest is the said to the charge for borrowing a money from any individual or institution. The charge against the credit is determined in terms of some percentage of total amount allocated indicated as rate. Hence the total percentage of charge of the amount advanced by the agency to the borrower is termed as interest rate. You really only “rent” money for a period of time because when you repay a loan you repay the same amount as you borrowed plus the interest over the time you held the loan. So the cost of “holding the loan” was the interest and, like renting an apartment, the interest is the rent paid for borrowing the money. One example of using borrowed money are credit cards. Which credit cards the banks give you an interest rate depending on the credit score that the individual has. So, if I am trying to buy a car for example, I can borrow X amount of money from my bank, but then I will have to pay for the interest which it will vary depending of my score. Also, if I want to buy a house it would be the same process.

The stocks of U.S. companies can be found on The New York Stock Exchange (NYSE) and Nasdaq. The New York Stock Exchange is the largest stock exchange in the world. The NYSE provides a marketplace for buying and selling millions of corporate stocks and other securities per day. They also use two methods of trading: brokers and all-electronic. “Brokers actively trade stocks on the floor of the NYSE. Buyers and sellers auction securities for the highest price. Brokers represent the entity buying the stock, whether it’s for a retail brokerage company or institutional investors such as pension funds. The brokers set the “bid” price, which is the price you’re willing to pay for the stock” (Amadeo, 2021). 

• The Nasdaq  Composite is a stock market index that consists of the stocks that are listed on the Nasdaq stock exchange so as, a stock must be listed exclusively on the Nasdaq market; the stock must be a common stock of an individual company, so preferred stocks, exchange-traded funds, and other types of securities are excluded. 

In the context of a single stock trading on a stock exchange, the volume is commonly reported as the number of shares that changed hands during a given day. The average volume of a security over a longer period of time is the total amount traded in that period, divided by the length of the period.

References 

Caplinger, D. (2021, June 22). What is a stock market index? defined, listed & monitored. The Motley Fool. Retrieved October 29, 2021, from https://www.fool.com/investing/stock-market/indexes/. 

Amadeo, K. (2020, September 17). What is the New York Stock Exchange, and how does it work? The Balance. Retrieved October 29, 2021, from https://www.thebalance.com/what-is-the-new-york-stock-exchange-3306243.