|Author||Topic: Relationship with GDP and interest rate|
|In Industry and company analysis, in order to estimate the risk free rate the book suggests to use the countries GDP growth rate and the inflation rate. I cannot understand the relationship a GDP growth rate has on the interest rate. Can someone explain?|
|A high GDP growth rate means that there are many "high return" investment opportunities available in the economy - so the risk free rate goes up simply because the demand for investable fund is higher than supply of the same.
From investor's perspective, since there are other high return investment opportunities available - the required rate of return goes up to reflect the opportunity cost of investment.
|y a also depends wat the overall monetary policy is of a country|
CFA Discussion Topic: Relationship with GDP and interest rate
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