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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Oblomov who wrote (66697)	8/24/1999 9:31:00 AM
From: Don Lloyd	Respond to of 132070

Andrew - (In general, the return on equity needs to be above the risk-free interest rate for capital to be employed at all. Otherwise, the capital would just be directed into less risky assets giving the same return. I would suggest that in your hypothetical economy, the risk free interest rate would be very low.) In this regard, the risk free interest rate is meant to be a limit below which investments will not be made. The investments may be made expecting higher returns, but competition will drive the actual returns down. The minimum interest rate also has a non-investment expression in the time preference of consumers for current consumption vs future consumption. Regards, Don