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: An unbiased predictor of future exchange rates is a predictor that is almost always correct. True…

A: The prediction of future exchange rates plays a significant role in global financial markets and…

Q: Which of the following statements is correct? A.) A flat yield curve occurs when the…

A: Options given in the question:A.) A flat yield curve occurs when the yield-to-maturity is virtually…

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: Does the Efficient Market Hypothesi hold true? Why or why not?

A: The efficiency of the market relates to how efficiently prices represent all available information.…

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: hy not?

A: Introduction : A forward contract can be seen as a private, customizable contract which is exchanged…

Q: How is the call option price impacted by varying the risk free rate of interest? How is the call…

A: 1) Call option is the contract according to which the buyer of the option has the right but not the…

Q: One way to offset a higher probability of default would be to have high quality collateral thus…

A: Default refers to failure of an obligation that is generally related to repayment of a loan or funds…

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

A: Held-to-maturity security:

Q: Unsystematic risk is * a.the risk associated with movements in securities prices B.higher when…

A: Risk is referred as uncertainty or loss. Financial risk is referred as the variability of actual…

Q: A security has an expected return higher than its required return. This security is selling at a…

A: A bond is a fixed-income security that provides the holder with the promise of future coupon…

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: Which of the following would cause lower bond yields? greater maturity risk or more liquidity?

A: Maturity risk premium: It is the measure of additional return that is expected in an investment by…

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: Why might an investor prefer a loan with a lower interest rate and a participation?

A: The amount linked with any amount that is granted as a loan, deposited or borrowed is known as…

Q: Suppose that C is the price of a European call option to purchase a security whose present price is…

A: As a first step, let's assimilate the information given to us: Current stock price is S C is the…

Q: The market efficiency hypothesis claims that, as a rule, the market value and intrinsic value of a…

A: The market  efficiency hypothesis posits that security prices reflect all available information,…

Q: is it possible for future prices to become negetive without violating the principle of no-arbitrage.…

A: Future prices refer to the price that two companies have agreed to pay or receive on a future day of…

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: Goodyear, a U.S. firm, sells tires to Airbus UK, and will receive payment of £1,000,000 in one year.…

A: With globalisation and increasing demand of services and products, firms operates businesses…

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: O The market rate of return. O Zero rate of return. A negative rate of return. O The risk-free rate.

A: Expected rate on security depends on the risk free rate and market rate and risk related to security…

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: 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: Let rf be the risk free rate of interest. E[r e ] be the expected return of some risky asset.…

A: CAPM: CAPM is also called as Capital assets pricing model. Factors affecting CAPM return are risk…

Q: How can investors make decisions about financial instruments that involve future payoffs? a) There…

A: Future payoff refers to the expected future return on financial instruments. Every financial…

Q: Explain the challenges policymakers face when interest rates are very low.

A: An interest rate is referred to as an amount that is charged over as well as above the principal…

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: a rise in risk premium will cause bond market prices to rise? true or false?

A: A risk premium is the additional return an investor expects to earn for taking on more risk compared…

Q: ubmit The longer the time to maturity, the lower the security's price sensitivity to an interest…

A: Higher the maturity, higher will be the duration of the bond, if all other factors are constant. A…

Q: What types of risks are interest rate andexchange rate swaps designed to mitigate?Why might one…

A: Introduction: An interest rate swap is a form of derivative contract whereby two counterparties…

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…