Refer back to the points you plotted on the previous graph. The line showing the relationship between bond prices and bond yields has a slope; hence, there is relationship between bond prices and interest rates. The implied yield on a bond becomes negative when its price to such a situation in the T-bill market? its maturity value. Which of the following events would most likely lead The United States government is forced to shut down its offices for several months because Congress and the president cannot pass a budget. OA massive decrease in investor confidence sharply increases the demand for T-bills. The increased demand causes T-bill prices to rise above their maturity values. The United States Treasury holds a large auction of T-bills, increasing the supply of T-bills in the market.

Refer back to the points you plotted on the previous graph. The line showing the relationship between bond prices and bond yields has a slope; hence, there is relationship between bond prices and interest rates. The implied yield on a bond becomes negative when its price to such a situation in the T-bill market? its maturity value. Which of the following events would most likely lead The United States government is forced to shut down its offices for several months because Congress and the president cannot pass a budget. OA massive decrease in investor confidence sharply increases the demand for T-bills. The increased demand causes T-bill prices to rise above their maturity values. The United States Treasury holds a large auction of T-bills, increasing the supply of T-bills in the market.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A central bank has a policy of intervening in the market for its government’s debt to ensure 10-year, zero-coupon bond yields stay within the range of 2% to 4%. Assume the zero-coupon bonds have a par value of 100 units. Explain clearly what enforcing this policy requires the central bank to do. (including bond prices relevant for implementing this policy, and comments on the credibility of the policy at the 2% bound and at the 4% bound.)
Lebanon has one of the highest level of government debt in the world, at about 360% of GDP. Many longer term bonds traded at less than half their face value. For simplicity, let the face value be £100 with no coupon and a price of £50. What is the interest rate?
Which of the following statements correctly describes characteristics of an Australian 13-week Treasury note? Group of answer choices A. If market yields don’t change then the value of the Treasury Note will decrease each day until its price is equal to its face value at expiry. B. Treasury notes are not issued by private companies. C. The coupons offered by a Treasury Note are generally set equal to the market yield to maturity to ensure that the issuer can raise the face value of the note at the time of issuance. D. None of the other statements are correct.
The Fed announces that they plan to buy a significant portion of a bond issue from the Treasury department, which will happen in six months. The announcement would immediately cause the dollar to depreciate. 1) True 2) False
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
The Federal Reserve decided to buy bonds in order to bring the economy back to full employment. This must mean that the Federal Reserve believes that the full employment level of output is a not enough information b below 1 million c exactly 1 million d above 1 million
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?
If the Federal Reserve sells more Treasury securities, overall interest rates go up. True False
The federal budget deficit has been growing over the past several years. What impact will this fiscal change have on the supply of Treasury bonds? A. Bond supply does not change B. Bond supply increases C. Bond supply declines
Suppose you are a bond dealer looking for arbitrage opportunities. The first column in the table below shows the current prices of the four government bonds (without default risk). Assume that you can buy and short these bonds at a given price. The remaining columns of the table are the cash flows generated by the bonds at the end of the first, second and third years. All bonds mature at the end of the third year. Are there arbitrage opportunities for the prices of these four types of bonds? If it exists, how can you seize this opportunity?
Suppose the Federal Reserve sells a $3000 bond, and the reserve ratio maintained by all private banks is 20%. Assume that all loans are fully redeposited (zero “cash drains”) and that all deposits are checkable deposits. Determine the effect of the bond sale on total loans and deposits in the private banks. Explain in detail how these changes would occur. Illustrate the total result of the effects in part (1) using balance sheets for the consolidated private banks and the Federal Reserve, respectively. Discuss how the effects in part (1) would be different if: (i) the reserve ratio was 25% instead of 20%; (ii) a certain portion of loans were held as cash outside banks instead of being redeposited in the banks.

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