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| Author: | Adam, D. Herning, T. Johannwille, U. |
| Title: | Analyse der Prognosequalität impliziter Terminzinssätze |
| Journal: | Zeitschrift für Betriebswirtschaft
1995 : VOL. 65:12, p. 1405-1422 |
| Index terms: | INTEREST RATES TERM STRUCTURE OF INTEREST RATES CAPITAL MARKETS |
| Language: | ger |
| Abstract: | The so-called "market interest method" derives implicit interest rates ("forward rates") from the current term structure of interest rates. Given the crucial assumption of perfect capital markets under certainty, these forward rates reflect the actual opportunity cost of capital, and, therefore, firms may use them to calculate present values. However, capital markets are not only imperfect but completely fail to predict future interest rates. The latter is due to the predominance of speculation, contradictory expectations, and stochastic disturbances. Hence, capital budgeting using present values should not be based on forward rates. |
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