Question

Evaluate the impact of the Federal Reserve on the risk-free rate. Suppose the Fed raises the...

Evaluate the impact of the Federal Reserve on the risk-free rate. Suppose the Fed raises the federal funds rate by 0.75% by the end of 2018.

- How will this action affect the value of a Dow 30 company?

- How will this action affect the multiple of a Dow 30 company?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

If Fed pursues risk free rates then the losses will be minimal or negligible and there is no default risk and hence good economic boost and expansion is foreseen considering enough liquidity in market so that money keeps rolling.

If Fed decides to Hike rates by 0.75% then it xn have drastic impacts and injure economy because money supply and liquidity will be crunched and no room for wage growth and employment perspectives can be seen. This will also defer any substantial capital expenditure by Dow30 Companies be it single or multiple. Since economy has also seen tax rates to be cut, this is the only way theycan stabilize, however downside effects include deflation and lesser consumption due to higher interest rates which will again bring back lesser amount of revenues for Dow30 companies .

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
What Happens When The Fed Raises Rates? The Federal Reserve has signaled that they intend to...
What Happens When The Fed Raises Rates? The Federal Reserve has signaled that they intend to increase interest rates three times during 2017. How will this affect the economy? What affect could the interest rate hike potentially have on unemployment? Why?
When the Federal Reserve conducts Open Market Sales, it - raises the effective federal funds rate...
When the Federal Reserve conducts Open Market Sales, it - raises the effective federal funds rate - lowers the effective federal funds rate - lowers the effective discount rate -raises the effective discount rate.
In the current situation of abundant excess reserves in the Federal funds market, the Fed raises...
In the current situation of abundant excess reserves in the Federal funds market, the Fed raises interest rates by A raising the interest on reserves B raising the discount rate C by lowering the reserve requirement D engaging in Open Market Operations (OMO).
What is the Federal funds rate and how does it affect the economy? The Federal Reserve...
What is the Federal funds rate and how does it affect the economy? The Federal Reserve (FED) increased both the Federal funds rate and their interest rate expectations during their March meeting. Why? How did the market react to the news? What effect, if any, did the TCJA have on the FED’s growth and inflation expectations?
Suppose the Federal Reserve (Federal Reserve (Fed)) gave First National Bank (FNB) a $ 10 million...
Suppose the Federal Reserve (Federal Reserve (Fed)) gave First National Bank (FNB) a $ 10 million rediscount loan by increasing the bank's Fed account. a) Show the effect of this transaction on the FNB balance sheet. Note that the deposits held by banks at the Fed are part of the bank reserve. B) Assume that the FNB does not have excess reserves before receiving the rediscount loan. How much of the FNB $ 10 million can you loan? C) What...
1. The Federal Reserve Act says that the Fed must try to achieve​ ______. A. a...
1. The Federal Reserve Act says that the Fed must try to achieve​ ______. A. a balanced budget B. maximum​ employment, stable​ prices, and moderate​ long-term interest rates C. a stable U.S. dollar on foreign exchange markets and moderate​ long-term and​ short-term interest rates D. an economic environment in which investment in U.S. stock and money markets is encouraged The Federal Reserve Act says that the Fed must use​ ______ to achieve its objectives. A. bank reserves B. commercial banks...
1. When the Fed purchases government bonds, that tends to ___ the federal funds rate and...
1. When the Fed purchases government bonds, that tends to ___ the federal funds rate and ___ the prime rate. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease e. None of the above 2. How does the Federal Reserve affect the supply of money using open market operations? a. The Fed increases the reserve requirements of bank and thus banks must obtain additional funds from the Fed. b. The Fed buys government bonds from banks, which...
The Federal Reserve is the major influencing body of monetary policy. Suppose the Fed wishing to...
The Federal Reserve is the major influencing body of monetary policy. Suppose the Fed wishing to encourage economic growth by increasing the money supply. How could this positively or negatively influence your investment in a company? Is this effect different for cyclical vs. defensive companies?
1) Based on your research, explain how the decision of the Federal Reserve Bank (Fed) to...
1) Based on your research, explain how the decision of the Federal Reserve Bank (Fed) to raise interest rates would be expected to affect a firm’s cost of capital. 2) In a rising interest rate environment, how would you describe how bond values change over time? 3) As a bond investor, what measures would you take to manage market or interest rate risk?
2. When the Federal Reserve announces an increase in the federal funds rate, how would bond...
2. When the Federal Reserve announces an increase in the federal funds rate, how would bond prices react to the monetary policy action, i.e., increase, decrease, or stay put?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT