Which of the following statements is CORRECT, other things held constant? O a. If expected inflation increases, interest rates are likely to increase. O b. Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt sec O c. If companies have fewer good investment opportunities, interest rates are likely to increase. O d. Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills. O e. If individuals increase their savings rate interest rater are likely to incroaco

Which of the following statements is CORRECT, other things held constant? O a. If expected inflation increases, interest rates are likely to increase. O b. Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt sec O c. If companies have fewer good investment opportunities, interest rates are likely to increase. O d. Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills. O e. If individuals increase their savings rate interest rater are likely to incroaco

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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In considering the market-based approach to measuring credit risk, choose all statements that are correct: a) The Merton model is useful to price defaultable debt as long as the underlying company has exchange-traded stocks. b) In the Merton model, the only unknown parameter is the volatility of firm equity c) In the Merton model, the only unknown parameter is the volatility of firm value, which comprises equity and debt. d) CDS spreads cannot be used to imply default probabilities because recovery rates are variable
Under the Pure Expectations Theory, if issuers expect interest rates to increase, O Two statements are correct. O borrowers will generally prefer to issue short-term securities rather than long-term securities. O the corresponding decrease in the demand for long-term funds by borrowers places downward pressure on long-term funds. O Three statements are correct. O there is downward pressure on the yield of short-term funds. O Only one statement is correct. O they will prefer to lock in the present interest rate over a long period of time.
The zero-lower-bound problem: A. creates a negative shock to the economy. B. occurs because people can always earn more from holding bonds than holding cash... C. is responsible for the recession of 2007-2009. OD. implies that nominal interest rates can be zero.
Which of the following statements is true? A. The percentage decrease in value when the yield-to-maturity (YTM) increases by a given amount is smaller than the increase in value when the yield-to-maturity (YTM) decreases by the same amount. B. Ratio analysis expands GAP analysis to focus on the sensitivity of bank profits across different interest rate environments. C. The repurchase price is smaller than the selling price and accounts for the interest charged by the buyer, who is lending funds to the seller with the security as collateral. D. The issuers or the firms issuing the bonds are rated on their junior unsecured debt.
5.1 Please provide step by step explaination as I keep getting this question wrong
What is the SUBPRIME crisis What is a SUBPRIME credit How the Subprime crisis has been transferred to the financial system and the markets What a lesson the fall of Lehman leaves. Establish 05 conclusions about the case and compare it with the economic crisis of the covid
Both EV-to-EBITDA and PE multiples can be linked to interest rates through the discount rate used in discounted cash flow valuation. Holding all else equal, when discount rates are higher, valuation ratios are lower. Perhaps because of this, we tend to see stock prices as well as, the value of private business transactions decline when interest rates increase. Macroeconomists like to describe interest rates as consisting of two components: the real interest rate component and an expected inflation component. In some situations, increases in interest rates are the result of an increasing real interest rate; in other situations, the cause of an interest rate increase is an increase in expected inflation. How might valuation ratios be expected to respond to an interest rate increase generated by an increase in expected inflation versus an interest rate increase that represents an increase in real interest rates?
“Inside the company fixed income managers bought bonds but they did not keep them for very long at all. Instead, they were constantly buying, exchanging and selling the bonds in their portfolios” Explain why the behavior described in the above quote may happen in terms of interest-rate risk immunization and downgrade risk. Do not discuss speculation or arbitrage as causes of this behavior as these will not gain any credit in this examination.
Give typing answer with explanation and conclusion Consider the prevailing condition of inflation (including changes in global oil price), the economy, budget deficit, decreases in expected remittance inflow, and the central bank monetary policy that could affect interest rate. Based on the prevailing conditions do you think bond price will increase or decreases in next six-month period. In the real economic environment which other factors may affect the bond price? Which factor in your opinion will have biggest impact on bond price? Assess the above given situations.
Corporate bonds are riskier than US Treasury, so they pay default risk premium over what Treasury pays to stay competitive in the market. True False
1Indicate whether each of the following actions will increase or decrease a bonds yield tomaturity:(5)a A bonds price increase.b The companys bonds are downgraded by the rating agencies.c A change in the bankruptcy code makes it more difficult for bondholders to receivepayments in the event a firm declares bankruptcy.d The economy enters a recession.Question 2If a compans beta were to double, would it expected return double?(2)Question 3Are there conditions under which a firm might be better off if it were to choose a machine with arapid payback rather than one with a larger NPV
Why is the relationship between price and yield negative? a. Because investors reward higher cash-flows with a lower price. b. Because governments regulation prohibits a positive relationship. c. Because an increase in the yield discounts cash flows at a higher rate and so their net present value decreases. d. Because cash flows are variable over a bond’s life. Please answer asap only 10 minutes is left

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