In general, would a falling rate of market interest cause the price of an MPT security to increase or decrease? Would the increase or decrease be greater if the security was issued at a discount? Would an increase in prepayment be likely or unlikely? Describe with an example.

Q: Why should we care what the Term Structure of Interest Rates looks like?  The Expectations Theory of…

A: The question is to explain the concept of term structure of interest rate, which varies with change…

Q: What differences between the daily market valuation of a traditional security and the valuation…

A: There is need of proper valuation of security there many methods of valuation.

Q: An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate…

A: Hedging is technique of reducing risk. This reduction in risk also results typically in a decrease…

Q: How low can nominal interest rates go? Explain why they can become negative.

A: The nominal interest rate is the interest rate that is calculated before inflation is factored in.…

Q: Explain negative inflation premium.

A: Negative inflation premium, also known as deflationary premium, refers to a situation where the…

Q: Is default risk premium likely to be pro-cyclical (i.e., increasing during economic expansion) or…

A: The difference between the company's actual interest rate and risk free rate within the industry is…

Q: Explain whether you agree or disagree with the following statement:

A: Interest rate risk is the risk arising from the fluctuations in the interest rates. It depends…

Q: If the security market is efficient in the strong form, then _____. Group of answer choices a. it…

A: There are three forms of market hypothesis weak form, semi-strong form and strong form

Q: Is the statement that a pproject that is unacceptable today might be acceptable tommorrow given a…

A: Yes , the statement is correct. Any changes related to market returns affects project of a company.…

Q: sider a security that pays income to its holders (e.g., a dividend-paying stock, or a coupon bond).…

A: There some stocks or bonds that pay dividend or annual interest payments than value of stocks and…

Q: Assume that CAPM does not hold and securities may earn abnormal returns. Suppose security A has a…

A: CAPM: It is a model that shows the relationship between the systematic risk & expected return of…

Q: According to the Random Walk hypothesis, security prices respond only to new information, which…

A: The Random Walk hypothesis is a financial theory that suggests that stock prices move randomly,…

Q: When market rates of interest rise after a fixed-rate security is purchased, the value of the…

A: Held-to-maturity security:   The debt security which are held by an investor with an intention to…

Q: Explain how alternative investments can act as a hedge against inflation.

A: Alternative Investments:  Stocks, bonds are financial instruments that fall under the category of a…

Q: Which of the following is correct about the security market line (SML)? Investment projects that…

A: Security market line is the graphical representation of the values of stock against the risk…

Q: at is the effect of interest rate volatility on callable options and puttable options?

A: Callable and puttable option gives the opportunity to buy or sell bonds before the maturity of bond…

Q: Is it correct to state that banks’ returns will be higher if interest rates increase? Outline the…

A: The duration analysis is the method through which the financial institutions determine the change in…

Q: You might want to sell an option to prevent further losses if its market price is dropping. True…

A: Selling an option to prevent further losses when its market price is dropping is not a good…

Q: The maximum rate of return needed to induce an investor to purchase or hold a security is referred…

A: The statement is TRUE.Explanation:Step 1:An investor's required rate of return is the lowest…

Q: "If a security plots below the security market line, it is: " O ignoring all of the security's…

A: Security market line : Security market line represents the beta and expected return of a security on…

Q: If markets are efficient, how is it possible that market bubbles and crashes occur?

A: An efficient market hypothesis is an approach to the financial market that states that the financial…

Q: Which of the following is the risk due to inflation?      Business risk     Financial risk…

A: In the dynamic landscape of finance and investments, one risk looms large, silently eroding the…

Q: What advantage does hedging using money market rates have over using interest rate futures?

A: However, there are also some drawbacks to consider:Potential Lower Returns: Interest earned on money…

Q: Assess the following statements: I. Default risk is the risk that a security issuer will default on…

A: The risk that a lender assumes in the event that a borrower is unable to make the required payments…

Q: Explain what a first-to-default credit default swap is. Does its value increase or decrease as the…

A: A First-to-Default Credit Default Swap (FTD CDS) is a financial derivative instrument used in the…

Q: Which of the following is incorrect regarding margin trading? O a. The relationship between security…

A: Margin trading (MT) is the benefit which is provided by the trader to the investors to purchase…

Q: An order to buy or sell a security at the current price is a ______________.    Group of answer…

A: See below the definition

Q: Will the actual realized yields be equal to the expected yields if the interest rates change? If…

A: Actual realized yield refers to the actual return earned by an investor on a bond or other…

Q: Which tranches in a CMO issue are least subject to price variances related to changes in market…

A: The Tranches are various layers of investors in a collateralized mortgage obligation. There are four…

Q: Does the efficient market hypothesis suggest that an investor can outperform the market? What effect…

A: Does the efficient market hypothesis suggest that an investor can outperform the market?  The…

Q: If interest rates in the economy are high, then a firm would use a MARR higher than current interest…

A: MARR : Minimum acceptable rate of return is the return which the investors need from the project to…

Q: What kind of interest rate swap would a commercial bank with a negative re-pricing gap (that is,…

A: We have to find out an appropriate kind of interest rate swap for a commercial bank with a negative…

Q: If you observe open interest is increasing and prices are moving higher, which of the following…

A: Technical analysis is the technique that tries to predict future movements of the market by studying…

Q: no-arbitrage price of Security C?

A: Arbitrage opportunity exist when there is mispricing in value of security but if value is correct…

Q: Can real interest rates be negative

A: The real rate of return is calculated to ascertain the actual return on investment considering the…

Q: hat is semi-strong-form EMH? What would you expect to see/not see if markets where semi-strong form…

A: Solution-   Semi Strong that means not a very weak or not a very strong. The Semi-Strong form of the…

Q: Do you think some investors may take advantage of the interest rate reduction, despite economic…

A: Investors deals in various investment options like derivatives instruments that require margin money…

Q: Differentiate between “buying a security on a margin” and “selling a security short”. When would an…

A: Buying assets on margin, also known as margin trading, is putting up collateral, usually with your…

Q: To what extent does investor mood explain price fluctuations? Explain

A: Investor:- A person or other entity (such as a company or mutual fund) who invests money in the…

Q: If the weakest form of market efficiency holds, then security prices reflect all information found…

A: Technical analysis, which rely on past data to predict future stock price moves, would not be…

Q: What is meant by the real risk-free rate of interest? Seleccione una: a. The nominal risk-free…

A: Nominal Rate of return is the actual return provided by a security. When the nominal rate of return…