Question

Q2 Briefly describe the difference in the bond market in general and the stock market in...

Q2 Briefly describe the difference in the bond market in general and the stock market in the context of investment and return. Why is corporate bond investment usually riskier than investing in US Treasury securities?

Q3. Estimate the rate of return (yield to maturity) if you as an investor purchase a one-year US TN at the market price of $955 with an FV of $1,000. Make sure you show the numerical estimation by using the yield equation.

Q4. Draw a hypothetical demand and supply curve for S&P 500 stocks and briefly explain the effects of unexpected increase in inflation rate caused by a sudden rise in energy prices.

Q5. Draw a demand and supply curve of the loanable funds market and explain the effects on equilibrium prices and quantities of loanable funds in response to the situation described in Q4.

Q6. Suppose the increase in tariffs on imports of goods and services from China and EU countries caused a capital flight of currency from the United States. Show the effects this would have on US exports, imports, and trade balances.

Homework Answers

Answer #1

Q2. There are a variety of options available for investment in the market, which also includes stocks, bonds, t-bills etc. Bond is paper signifying that the bond owner has given the debt to the bond seller. They generally carry a fixed rate of interest.  On the other hand, holding stocks means that an individual has a stake of ownership in the firm. Hence he/she is a stakeholder in the firm and his/her future earnings on the stock is based on the performance of the firm on the stock market. Hence one can infer that stocks carry inherent risk with them, however, bonds are lesser riskier. Also in the case of the firm going bankrupt or liquid, bond owners are given priority in repayment rather then the stock owners which again increases the risk in stock investment. However, as we know risk and reward generally go hand in hand, so higher the risk in stocks, higher is the possibility of profits are.

Corporate bond investment is usually riskier than investing in US Treasury securities. The riskiness of investment in any instrument is perceived based on the ability of the firm/organization to pay back the investment in adverse economic scenarios. Considering the more financial stability of US Treasury over corporates, it is more expected to get payback from US government based instruments rather then from corporates which have lesser sources of revenue with them

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Utilize a market model to draw the demand and supply for loanable fund in equilibrium. Label...
Utilize a market model to draw the demand and supply for loanable fund in equilibrium. Label the demand curve D1 and the supply curve S1. Label the initial interest rate as r1 and quantity of loanable funds as Q1. Shift the correct curve to demonstrate what happens in this market when there is strong economic growth. Be sure to label the new equilibrium interest rate and quantity of loanable funds. Briefly describe what has happened in this market.
2. Graph B: Utilize a market model to draw the demand and supply for loanable fund...
2. Graph B: Utilize a market model to draw the demand and supply for loanable fund in equilibrium. Label the demand curve D1 and the supply curve S1. Label the initial interest rate as r1 and quantity of loanable funds as Q1. Shift the correct curve to demonstrate what happens in this market when there is strong economic growth. Be sure to label the new equilibrium interest rate and quantity of loanable funds. Briefly describe what has happened in this...
Q1] List and briefly describe 3 major risks in bond investing. Q2] Which class of bonds...
Q1] List and briefly describe 3 major risks in bond investing. Q2] Which class of bonds is not affected by one of the three major risks in bond investing listed in Q1, and which specific risk is it? Q3] What is the bond market’s single main mechanism for incorporating risks in bonds? Q4] How is the bond market’s mechanism listed in Q3 related to bond prices? Include a brief description of how it affects or interacts with bond prices. Q5.a)...
The economies of China and India experienced very rapid growth. This increases their citizens’ income and...
The economies of China and India experienced very rapid growth. This increases their citizens’ income and wealth. In turn, these citizens increase their savings in their country and also in the United States. @ When foreign savings enter the US loanable funds market, which curves if affected — supply or demand? How is the curve affected? @ Draw the graph of the US loanable funds market both before and after the increase in foreign savings? @ How does the change...
1) The slope of the supply of loanable funds curve represents the Select one: a. positive...
1) The slope of the supply of loanable funds curve represents the Select one: a. positive relation between the real interest rate and investment. b. positive relation between the real interest rate and saving. c. positive relation between the nominal interest rate and investment. d. positive relation between the nominal interest rate and saving. 2) In Imaginaryland, the supply curve of loanable funds is Qs = 1000*r + 2, the demand curve of loanable funds is Qd = -10*r +...
Chapter 7.1 At the beginning of the year, a bakery had a capital stock of 5...
Chapter 7.1 At the beginning of the year, a bakery had a capital stock of 5 baking ovens. During the year, the bakery had to scrap 2 old ovens and purchased 3 new baking ovens. The bakery’s gross investment for the year totaled ______baking oven(s). The bakery’s net investment for the year totaled _____baking oven(s). This year Dominoes’ makes a total investment of $1.2 billion in new stores. Its depreciation in this year is $200 million. Dominoes’ gross investment is...
Describe whether the following changes cause the aggregate demand curve to increase (shift right), decrease (shift...
Describe whether the following changes cause the aggregate demand curve to increase (shift right), decrease (shift left), or neither. (a) The price level increases. (b) Investment decreases. (c) Imports decrease and exports increase. (d) The price level decreases. (e) Consumption increases. (f) Government purchases decrease. Describe whether the following changes cause the long-run aggregate supply curve to increase (shift right), decrease (shift left), or neither. (a) The price level increases. (b) The stock of capital in the economy increases. (c)...
Q1 Ch1 (20%) a. Supply: Suppose the following information is known about a market: 1. Sellers...
Q1 Ch1 (20%) a. Supply: Suppose the following information is known about a market: 1. Sellers will not sell at all below a price of $2. 2. At a price of $10, any given seller will sell 10 units. 3. There are 100 identical sellers in the market. Assuming a linear supply curve, use this information to derive the market supply curve. b. Demand: Suppose the demand for a particular product can be expressed as Q = 100/p. Calculate the...
1.Which of the following changes would most likely occur in the Gotham housing market if the...
1.Which of the following changes would most likely occur in the Gotham housing market if the city were to add a network of bike paths? a.The supply curve would fall. b.The supply curve would rise. c.The demand curve would fall. d.The demand curve would rise. 2.Which of the following changes would most likely occur in the Gotham housing market if the city were to require developers to pay a tax on each new building? a.The supply curve would fall. b.The...
51. Which statement about the Federal Open Market Committee is untrue? (a) the Secretary of Treasury...
51. Which statement about the Federal Open Market Committee is untrue? (a) the Secretary of Treasury always is a voting member of the Committee on monetary policy decisions; (b) the President of the New York Fed, by tradition, always is a voting member on policy matters; (c) the Committee formulates, but does not implement, monetary policy; (d) its policy decisions do not require a consensus among voting members. 52. An open market operation designed to add reserves to the banking...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT