QUESTION 25 You buy a mortgage pass through security with a 7.5% coupon rate and a 5.5% discount rate. The price at the time of purchase reflects a 10% annual prepayment rate. One hour after your purchase, the expected annual prepayment rate falls to 5%. The value of your mortgage pass through security should: A. Remain the same OB. Rise OC. There is not enough information to answer the question OD. Fall

QUESTION 25 You buy a mortgage pass through security with a 7.5% coupon rate and a 5.5% discount rate. The price at the time of purchase reflects a 10% annual prepayment rate. One hour after your purchase, the expected annual prepayment rate falls to 5%. The value of your mortgage pass through security should: A. Remain the same OB. Rise OC. There is not enough information to answer the question OD. Fall

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Suppose someone’s cost of going to the ATM is $1.50, there is a 12 percent probability of having his cash lost or stolen, and he spends $5 each day. Suppose his total cost of holding cash = (547.50/T) + (0.375 × T). Find the nominal interest rate.
Higher interest rates are likely to Group of answer choices decrease consumer spending and increase consumer saving. have no effect on consumer spending or saving. increase consumer spending and decrease consumer saving. decrease both consumer spending and consumer saving.
K A twenty year bond with a $1000 face value was issued with a yield to maturity of 4.5% and pays coupons semiannually. After ten years, the yield to maturity is still 4.5% and the clean price of the bond is $960.09. After three more months go by, what would you expect the dirty price to be? OA. $1,000.09 OB. $970.09 OC. $980.09 O D. Cannot be determined from information given.
An option's cost (premium) before expiration reflects: A. The Expected Value of any dice roll or - The Expected Cost of buying dice to roll 1000 times B. The Expected Value based on the history of prices for that asset or - The Expected Cost of Hedging something similar C. The Expected Value the Owner of the option has already spent on it or - The Expected Cost of the buyer Hedging Through the option's Life D.
An investor allocates $30,000 and $50,000 to two assets (A1 and A2). These assets generate 5% and -4.5% rate of returns, respectively. She allocates the remaining 50% of her portfolio to an asset (A3), which provides 4.5% rate of return. Calculate the portfolio's rate of return.
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Draw the cashflow diagram for each situation
The Federal Reserve decides to buy bonds and there is a change in the equilibrium bond price. What bond price is most likely? Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a not enough information b 940 c 950 d 960
Calculate the present value (price) of a discount bond with face value of $100, maturity of 5 years given yield to maturity is 5%. Round to two decimal places and do not enter a '$' sign. 78.35 (with margin: 0.02)
4) You are a financial professional working in a corporate loan department. A company named Mitch Hedberg Inc. (MH) comes to you for a loan. MH has debt from a previous loan (given by a different firm than yours) of 200. Your company analysts say that MH is likely to earn either 180, 240, or 300 this year - each with a probability of 1/3. MH wants you to lend them 100. MH could use this borrowed 100 to do either project X or project Y. Project X has a guaranteed return of 125 if the 100 is put there. Project Y may return either 0 or 210; each has probability of 1/2 and also costs 100 to do. a) Which project, X or Y, has the larger expected value? b) If you lend MH the 100, what will they do with the money? Why? Show your math. c) Should you lend MH the money or not? Show your math. d) Why did I choose the letters "MH" for this problem? What financial economic concept with initials "MH" is important in this problem?