Question

30) When FED announces to increase interest rates? What should happen to stock market portfolio price? 1. Price should drop. 2. Price should Increase. 3. Price should drop by a magnitude closer to the drop seen in a 20-year zero-coupon bond than to that in a 1-year bond. 4. Price increase because expected return increases.

1, 3

2, 4

2

1

Answer #1

**Solution:**

When FED announces to increase interest rates? What should happen to stock market portfolio price?

1. Price should drop **("Correct") - Since, investors
divert the fund to deposits instead of market
portfolio**

2. Price should Increase. **("Incorrect") - Since , Price
should decrease and not icrease**

3. Price should drop by a magnitude closer to the drop seen in a
20-year zero-coupon bond than to that in a 1-year bond
**("Correct")
- Since, Price drops to the magnitude closer historical price of
ZCB , instead of latest bond**.

4. Price increase because expected return increases
**("Incorrect") - SInce price
decreases.**

Hence, 1 & 3 are correct options

When FED announces to increase interest rates? What should
happen to stock market portfolio price?
1. Price should drop.
2. Price should Increase.
3. Price should drop by a magnitude closer to the drop seen in a
20-year zero-coupon bond than to that in a 1-year bond.
4. Price increase because expected return increases.
1, 3
1
2
2, 4

What would we see happen to the bond price and interest rates
now, if people expected that the FED was going to raise the
interest rate in the near future? Also, why would that be the
case?

1. Suppose the Fed announces that interest rates will continue
to rise in 2018. How would this impact the market for bonds? Would
it impact demand or supply? Would it cause an increase or decrease?
How would it impact the equilibrium quantity, price and interest
rate? Select ALL that apply
- The demand for bonds.... decreases/increases/stays the
same
-The supply of bonds...... decreases/increases/stays the
same
-The equilibrium quantity..... rises/falls
-The equilibrium price...... rises/falls
-The equilibrium interest rate..... rises/falls
2. Consider...

There are 2 bonds in the portfolio. Their current prices,
interest rates, and durations are listed below. What is the change
in the portfolio value due to a 1% drop in the interest rate?
Bond
A
B
Market price
800
1,200
Interest rate
7%
5%
Duration (year)
6
4
Select one:
a. An increase of $90.74
b. An increase of $93.77
c. A decrease of $89.54
d. A decrease of $86.01
e. An increase of $83.21

Answer the following questions:
What should the current market price be for a bond with a
$1,000 face value, a 10% coupon rate paid annually, a required rate
of return of 12%, and 20 years until maturity?
What should the current market price be for a bond with a
$1,000 face value, a 10% coupon rate paid annually, a required rate
of return of 8%, and 20 years until maturity?
What generalizations about bond prices can you make given your...

True or false:
If interest rates fall by 1%, a 10-year, 3% coupon bond will
increase in percentage of price less than an otherwise equivalent
zero-coupon bond.
The term structure of interest rates defines the relation
between bond maturity and bond yield to maturity.
Nominal interest rates tend to increase when the economy
expands.
A pension fund would probably prefer a municipal security with
a yield of 2.5% to an equivalent corporate bond with a yield of
3%.

1. Which of the following is the most likely to happen if
interest rates (and thus bonds yields) were to go up?
a. Bond prices would also increase.
b. Bond coupon rates would decrease.
c. Face value of bonds would also increase.
d. Bond prices would go down.
e. Nothing, since interest rates don't affect bond prices.
2. Which of the following is the correct description of a bond
with a coupon rate of 5% and YTM of 4%?
a....

If the Fed decreases interest rates, other things remaining the
same, foreigners demand ____ dollars thereby ____ the price of the
dollar on the foreign exchange market.
Question 48 options:
1)
more; increasing.
2)
more; decreasing.
3)
fewer; increasing.
4)
fewer; decreasing.
Question 49 (2 points)
The relationship between the AS-AD model and the
Phillips curve points out that as aggregate demand decreases, the
unemployment rate
Question 49 options:
1)
decreases and the inflation rate rises.
2)
increases and the...

What is the approximate percent change in value
of your portfolio if all (annual) interest rates go down by two
percentage points?
What is the approximate change in dollar value
of your portfolio if all (annual) interest rates go down by two
percentage points? Your portfolio consists of one of each bond
Bond A: Coupon rate = 10%, Maturity = 2, Price = 109.40,
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Bond B: Coupon rate = 5%, Maturity = 5, Price...

1. Which would cause an increase in interest rates in credit
markets?
a. An increase in the supply of consumer
saving
b. A decrease in business demand for
credit
c. An increase in consumer demand for
credit
d. An increase in the supply of business
saving
2. As interest rates decrease, the:
a. Cost of current consumption relative to
future consumption remains the same
b. Cost of current relative to future
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