3. According to an article on the junk bond market in Europe published in the Economist in 2016, "The spread (the interest premium over government borrowing rates) paid by junk-bond issuers has risen by nearly three-and-a-half percentage points since March last year." (a) How can you tell whether a newly issued bond is a junk bond? (b) Why would the spread between government bonds and junk bonds have been rising? (c) Does this increase in the spread make junk bonds a better or a worse investment compared with buying government-issued bonds? Briefly explain.

3. According to an article on the junk bond market in Europe published in the Economist in 2016, "The spread (the interest premium over government borrowing rates) paid by junk-bond issuers has risen by nearly three-and-a-half percentage points since March last year." (a) How can you tell whether a newly issued bond is a junk bond? (b) Why would the spread between government bonds and junk bonds have been rising? (c) Does this increase in the spread make junk bonds a better or a worse investment compared with buying government-issued bonds? Briefly explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

1. Using both the supply and demand for bonds and liquidity preference frameworks, show how interest rates are affected when the riskiness of bonds decreases. Are the results the same in the two frameworks?
66
15.) What causes the basic changes to overall supply and demand for money and loanable funds?
If interest rates fall after a bond issue, the bond’s price will _____. This change will be more noticeable for _________ bonds. a. decrease ... long-term b. increase ... short-term c. decrease ... short-term d. increase ... long-term
1
3. Suppose you are looking to buy a bond that promises to pay $600,000 on the date of maturity in one year. A. If you bid for the bond and wind up paying a price of $590,000, solve for the interest rate on this bond. Round your answer to four decimal places. b. If on the next day, you bid for the bond and pay a price of $575,000, solve for the interest rate on the bond now. Round your answer to four decimal places. C. What is the relationship between the bond price and the interest rate on the bond?
1) What is a mortgage-backed security and what part did these play in the 2008 financial crisis? 2) Do you think we as banks, regulators, investors, and consumers have learned our lesson? (i.e do you think this could happen again?)
12 Inflationary expectations in the economy increase rapidly, evoking a much stronger response from issuers of bonds than borrowers of bonds. Using the model of supply and demand for bonds, illustrate and explain the impact of this increase in inflationary expectation on equilibrium bond price and interest rate.
4. The subprime mortgage market The financial crisis started with defaults-borrowers not repaying their loans-on subprime mortgages in the United States. Subprime mortgages have which of the following characteristics? Check all that apply. They have a higher likelihood of default. They are made to people with relatively poor credit history. They are made to people with relatively few assets. Subprime mortgages expanded to about 35% of all mortgages issued in the United States in 2004. Which of the following contributed to the growth of these mortgages? Check all that apply. Decreased regulation of the financial sector A shift to lower-risk investments by investors The Federal Reserve setting low interest rates in the early part of the 2000s The expectation that housing prices would keep rising
4 In the economy there is a decrease in profitable business opportunities for firms. As a result, in the bond market the _____ curve for bonds should shift and the new equilibrium price will be _____. demand; higher demand; lower supply; higher supply; lower
3. The accompanying table shows the percentage of GDP accounted for by private savings, investment spending, and net capital inflow in the economies of Capsland and Marsalia. Capsland is currently experiencing a positive net capital inflow and Marsalia, a negative net capital inflow. What is the budget balance (as a per- centage of GDP) in both countries? Are Capsland and Marsalia running a budget deficit or surplus? Investment spending as a percentage of GDP Private savings as a percentage of GDP Net capital inflow as a percentage of GDP Capsland 20% 10 5 Marsalia 20% 25 -2