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$2.3$: An Overview of Financial Management and the Financial Environment: Interest Rates

An Overview of Financial Management and the Financial Environment: Interest Rates

Companies raise capital in two main ways: debt and equity. In a free economy, capital is allocated through the market system. The $-$Selectis the price that lenders receive and borrowers pay for debt. There is no single "price$($s$)"$ on different types of debt. "Price$($s$)"$ vary depend$($s$)$ on the borrower's risk, the use of funds borrowed, the collateral used to back the loan, and the length of time the funds are needed.