PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 13, Problem 20PS
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To discuss: Person X’s view point regarding the subprime crisis on irrational exuberance.
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# Which of the following best describes interest rate risk?
The risk that credit ratings will change, affecting the value of assets and liabilities
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The risk that interest rates will rise or fall, affecting the value of assets and liabilities
Chapter 13 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 13 - Market efficiency True or false? The...Ch. 13 - Prob. 2PSCh. 13 - Market efficiency Which (if any) of these...Ch. 13 - Prob. 4PSCh. 13 - Market efficiency How would you respond to the...Ch. 13 - Market efficiency Respond to the following...Ch. 13 - Prob. 7PSCh. 13 - Prob. 8PSCh. 13 - Market efficiency evidence Which of the following...Ch. 13 - Prob. 10PS
Ch. 13 - Prob. 11PSCh. 13 - Prob. 12PSCh. 13 - Market efficiency implications What does the...Ch. 13 - Prob. 14PSCh. 13 - Prob. 15PSCh. 13 - Abnormal returns Here are alphas and betas for...Ch. 13 - Prob. 18PSCh. 13 - Behavioral finance True or false? a. Most managers...Ch. 13 - Prob. 20PSCh. 13 - Prob. 21PSCh. 13 - Prob. 22PS
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- Proponents of behavioral finance use three concepts to argue that markets are not efficient. What are these arguments?arrow_forwardDiscuss the four basic types of anomalies that the Efficient Market Hypothesis cannot explain. Discuss the concept of behavioral finance and what are some of the most common cognitive biases in finance?arrow_forwardWhat is meant by the real risk-free rate of interest? Seleccione una: a. The nominal risk-free interest rate, less the expected inflation. b. The rate actually used in the market, not in textbooks. c. The rate quoted on short-term Treasury bills. d. The opportunity cost of foregoing consumption, representing the rate that must be offered to individuals to persuade them to save rather than consume.arrow_forward
- Which explanation BEST describes John Maynard Keynes' "The Paradox of Thrift?" a. Individuals should reduce spending to cut debt. b. When an individual reduces her or his own spending, he or she reduces someone else's revenue. C. Individuals should borrow money during uncertain economic times. d. Individuals should only borrow money when times are good.arrow_forwardExplain the challenges policymakers face when interest rates are very low.arrow_forwardWhy is it a bad idea in investing in just one investment? Discuss the concept of risk return. Explain why a non-interest bearing note is effectively an interest-bearing note?arrow_forward
- The purpose of the inflation premium is to maintain the purchasing power of money while it is loaned to someone else. TTrueFFalse What kind of problem bad credit risks people pose to financial intermediaries ? AMoral hazard BNone of the above CAdverse Selection DFree-ridingarrow_forwardWhy does behavioral finance considered investors as "normal" yet biased and errors? Support being subject to decision-making your answer.arrow_forwardExplain market risk and discuss why banks are subject to this risk. Discuss how banks manage this risk using Value at Risk (VaR) modelling and examine the limitations of this approach.arrow_forward
- What are the main risks that credit ratings reflect? Do we need creditratings? What are the parameters and risks that credit risk ratings do notincorporate and investors need to be aware of?arrow_forwardPlease answer the question below in detail: Why do credit ratings change? How can these changes affect investors?arrow_forwardExplain why the covered interest rate parity (CIP) condition can be violated during the financial crisis based on Naohiko Baba and Frank Packer (2009)..arrow_forward
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