The following effects are likely to occur in the Bond Market if there is an EconomicExpansion, EXCEPT:Total Demand for Bonds will expandO Total Supply of Bonds will expandO Price per Bond will decreaseO Return on Bonds will decreasepactMoneyDoNds.

If there is an economic expansion, the demand for bonds will be higher in the market. It will lead…

Answered: The following effects are likely to…

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter31: Capital Markets

Section: Chapter Questions

Problem 9E

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Economics What is the probability of default if the risk premium demanded by bond holders is 2% and the return on the riskless bond is 5% (round to the nearest decimal point) Savet a. 1.9% b. All of the answers here are incorrect Oc 1.3% Od. 21% Oe2.8%
The following factors could likely cause an Increase in the Demand for Bonds, EXCEPT: O Increase of Investor's Wealth. Increase in market interest rate. Decrease in Riskiness of Bonds. O Increase of Liquidity of the Bonds. supp
Suppose you are in charge of the financial departmentof your company and you have to decide whether toborrow short or long term. Checking the news, yourealize that the government is about to engage in amajor infrastructure plan in the near future. Predictwhat will happen to interest rates. Will you advise borrowing short or long term?
When the economy is expected to enter into a recession, a BB rated bond would A be impossible to sell B show a higher yield than when the economy was stronge C likely default very soon D be converted to a zero-coupon bond
Consider price quotes and characteristics for two different bonds:Bond A Bond BCoupon Payment Annual AnnualMaturity 3 years 3 yearsCoupon Rate 10% 6%Yield to Maturity 10.65% 10.75%Price 98.40 88.34At the same time, you observe the spot rates for the next three years:Term Spot (Zero-Coupon) Rates1 year 5%2 years 8%3 years 11%Demonstrate whether the price for either of these bonds is consistent with the quotedspot rates. Under these conditions, recommend whether Bond A or Bond B appears tobe the better purchase.
K What is the shape of the yield curve given in the following term structure? What expectations are investors likely to have about future interest rates? (Click on the following icon in order to copy its contents into a spreadsheet.) Term Rate (EAR, %) % calculator Ask my instructor 5 1 year 1.99 2 years 2.39 Search or enter website name 6 What is the shape of the yield curve given the term structure? (Select the best choice below.) OA. The yield curve is a flat yield curve. OB. The yield curve is a normal yield curve (increasing). OC. It is hard to tell because we are not given an EAR for every year. O D. The yield curve is an inverted yield curve (decreasing). 3 years 2.76 MacBook Pro 5 years 3.35 & 7 years 3.77 Clear all S ( BAHBABY 7 8 9 19 10 years 4.14 20 years 4.94 Check answer 0
15) The nominal required return on XYZ stock is 14%. The nominal risk-free rate of return is 4% and the real risk-free rate of return is 2%. How much are investors requiring as compenssation for risk? What is the inflation premium?
Interest Rate 0 Sm m Q Quantity of Money Refer to the diagram of the market for money. Given Dm and Sm, an interest rate of i3 is not sustainable because the: O demand for bonds in the bond market will decline and the interest rate will rise. O supply of bonds in the bond market will decline and the interest rate will rise. O supply of bonds in the bond market will increase and the interest rate will decline. O demand for bonds in the bond market will rise and the interest rate will fall.
Modified duration . represents the 9% impact – expressed as a number, not as a decimal – on price given a 19% change in yield. · represents the weighted average term to maturity – expressed in years - of a bond's cash fiows. represents the S impact on a bond's price of a 100-basis point change in interest rates. is useful for quantifying a bond's credit risk.
a) Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. What is the future value of the $350 after 4 years? b) Suppose you are deciding whether to buy a particular bond from your local municipality. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. Assume the interest rateis6percent. Underwhatcircumstanceswillyoubuythebond?Meaninguptowhatpriceareyou willing to pay.
In a country Macroland, the government borrows at 5% for 1-year maturity. However, the Central Bank has announced interest rate hikes for the following years, so people expect that the next year the same 1-year bond will pay 7% and that the interest will rise again to 8% in the year after. Compute and draw the yields curve (for 1, 2 and 3 years bonds) of the government of Macroland, assuming that there is no risk of default and no inflation
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The following effects are likely to occur in the Bond Market if there is an Economic Expansion, EXCEPT: Total Demand for Bonds will expand O Total Supply of Bonds will expand O Price per Bond will decrease O Return on Bonds will decrease pact Money DoNds.