Discussion wk 4 - Assignment Example

AGGRESSIVE AND CONSERVATIVE FINANCING STRATEGIES Financing strategies can be divided into two types; aggressive and conservative financing strategies. These two strategies are defined on the basis of which the investors raise the capital or funds for the business. If the capital is raised from more short term finance or short term debt then it is considered as an aggressive financing strategy. On the other hand, when the capital is raised from long term finance or capital then it is considered as a conservative financing strategy.

The difference between the two is that firms that are looking for more risk and more returns generally go for aggressive financing strategy as short term financing cost them less. Similarly, firms that are looking to minimize their risk even at a higher cost would go for conservative financing strategies. NOMINAL RATE AND EFFECTIVE RATENominal interest rate is also termed as the stated interest rate. This interest rate does not include the compounding of the period or the time of the loan or investment and this interest rate is the simple interest rate.

On the other hand, effective interest rate considers the compounding of the period throughout the period of the loan or investment. Effective interest rate is used in order to analyze and compare the annual interest between loans or investment with different time periods. Generally, the nominal interest rate is less than the effective interest rate (Elias). Therefore the main factor that causes these two types of interest rate to differ is the period of the loan or investment. Work CitedElias, G.

What is the difference between effective interest rates and nominal interest rates?. Engineering Economy, 26 Jan. 2014.