Answered: he bond market is depicted in the graph… | bartleby

FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The bond market is depicted in the graph to the right.
a. The bond demand curve is downward sloping because
1000-
900-
So
A. the Fed's decision to buy or sell bonds is independent of the interest rate.
800-
B. lower bond prices translate into higher interest rates and returns.
700-
C. as the interest rate decreases people are willing to buy more bonds.
600-
D. the government sells more bonds at lower interest rates.
500-
Eo
400-
300-
200-
100-
D
0-
10
15 20
25
30 35
40
45
50
Quantity of Bonds
..... )
Price of Bonds

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The zero-lower-bound problem: A. creates a negative shock to the economy. B. occurs because people can always earn more from holding bonds than holding cash... C. is responsible for the recession of 2007-2009. OD. implies that nominal interest rates can be zero.
Now suppose there is no financial intermediary to handle liquidity shocks. However, at t = 1 a market for bonds opens up and agents can trade their wealth at t = 1 for wealth at t = 2. Each bond pays 1 at t = 2 and its price is pM. Calculate the consumer's optimal investment decision IM at t = 0, the price of the bond pM, and the optimal consumption in the two states cM, cM. Compare the mutual fund and bond market allocations: are c4 and c bigger or smaller than cf and c, respectively?
Bond X has a higher yield than Bond Y, what can be the reason? A Bond X has a longer history of selling to customers on credit B Bond X is issued by a service oriented company while bond Y is from a manufacturer C Bond X is in India, where the inflation rate is higher than the US, where Bond Y is issued D Bond X has a single A credit rating and Bond Y has a BBB credit rating
7. In recent news, the Bank of England (BOE) announced that it will raise interest rates as inflation in the UK reaches record highs. Required Given the expected increase in interest rates, what type of bond could a firm issue if they want the option of paying off their debt before maturity? Explain in detail. Would this type of bond be more or less desirable to the buyer of the bond? Why or why not?
Both EV-to-EBITDA and PE multiples can be linked to interest rates through the discount rate used in discounted cash flow valuation. Holding all else equal, when discount rates are higher, valuation ratios are lower. Perhaps because of this, we tend to see stock prices as well as, the value of private business transactions decline when interest rates increase. Macroeconomists like to describe interest rates as consisting of two components: the real interest rate component and an expected inflation component. In some situations, increases in interest rates are the result of an increasing real interest rate; in other situations, the cause of an interest rate increase is an increase in expected inflation. How might valuation ratios be expected to respond to an interest rate increase generated by an increase in expected inflation versus an interest rate increase that represents an increase in real interest rates?
H5. The bank have an incentive to value the new securities at a higher price because they will gain more. Is that a good or bad strategy? Explain why
If the Fed wants to decrease the money supply it will ______ Treasury securities in open market operations. Question 12 options: buy sell
Only answer . No explanation.all answer needed.instat upvote.thank you 2. What do you think were the main reason(s) behind the global financial credit crisis? Sub-prime mortgages High leverage ratio None of the above A,B&C The decrease of interest rates after the dot com bust 3. If investors expect interest rates to fall significantly in the future, the yield curve will be inverted. This means that the yield curve has a slope. steep upward flat downward slight upward 4. A bank panic can lead to a severe contraction in economic activity due to a decline in international trade the losses of bank shareholders. the losses of bank depositors. a decline in lending for productive investment 5. If you have a very low tolerance for risk, which of the following bonds would you be least likely to hold in your portfolio? a. Municipal bond b. Corporate bond with a rating of Baa c. U.S. Treasury bond d. Corporate bond with a rating of Aaa 6. What is financial globalization*…
If the Federal Reserve sells more Treasury securities, overall interest rates go up. True False
12. As bond ratings improve, bond yields go up. Is this true or false? Why?
What is NOT considered as an advantage of buying bonds in the Philippines? * Bonds are much less volatile compared to other forms of investments that can fluctuate depending on the market trends. Bonds perform better than the high-risk, high-reward stock investments. Interest on bonds are paid periodically, giving the buyer fixed passive income on top of his other sources of income or revenue. The income one receives from bonds is much higher compared to the savings accounts and time deposits. The low-risk features of bonds can offset potential losses that high-risk investments may incur.
Why is the relationship between price and yield negative? a. Because investors reward higher cash-flows with a lower price. b. Because governments regulation prohibits a positive relationship. c. Because an increase in the yield discounts cash flows at a higher rate and so their net present value decreases. d. Because cash flows are variable over a bond’s life. Please answer asap only 10 minutes is left

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