Homework Answers
Increased volatility in stock decreases return so investors will
park their funds in the bond market. Hence demand for debt
instruments would increase, thereby increasing the prices and the
yield on the bond would decrease.
Hence option c is correct option.
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30. How does an increase in stock volatility affect interest rates? A. Stock volatility has nothing...
What affect would reducing ncome tax rates have on the interest rates of unkelbords? A Interest...
What affect would reducing ncome tax rates have on the interest rates of unkelbords? A Interest rates would fail because the reduction in income tax rates would make the tax exempt privilege for municipal bonds loss valuable and reduce the demand for municipal bonds. O B. Interest rates would rise because the reduction in income tax rates would make the tax exempt privige formunicipal bondsfoss valuable and reduce the demand for municipal bonds OC Interest rates would rise because Treasury...
4. Interest rates and their effect on corporate profits and investment prices Interest rates affect corporate...
4. Interest rates and their effect on corporate profits and investment prices Interest rates affect corporate profits and security prices. Based on your understanding of the relationship between interest rates and corporate profits and security prices, identify which of the following statements is true and which are false. True False Ststements The higher the interest rate on a firm's debt, the lower will be the firm's profits, all other considerations remaining constant. An increase in the interest rate paid by...
In general, inflation triggers an increase in interest rates, which increases the demand for (and therefore...
In general, inflation triggers an increase in interest rates, which increases the demand for (and therefore price of) bonds and decreases demand for (and therefore the price of) stocks. Use a supply and demand diagram to explain why stock prices reacted the way they did based on an anticipated rise in interest rates. The interest rate has not increased yet, but is expected to in the future.
Bonds are a form of ________, with bond prices and interest rates that move in _________...
Bonds are a form of ________, with bond prices and interest rates that move in _________ . a.equity; the same direction b.equity; opposite directions c.debt; the same direction d.debt; opposite directions e.equity/debt split; sometimes the same direction and sometimes opposite directions If the yield to maturity on a bond is greater than its coupon rate, then a.the corresponding bond price will be greater than its par (face) value. b.the corresponding bond price will be equal to its par (face) value....
Assume that the riskless rate of interest is 4.5% and that the stock price has a volatility of 30%. Given a current...
Assume that the riskless rate of interest is 4.5% and that the stock price has a volatility of 30%. Given a current stock price of $100 and the fact that the stock does not pay any dividend: a) What is the probability that a European put option on the stock with an exercise price of $90 and a maturity date in one year will be exercised? Hint: You need to compute the probability that the stock price at maturity will...
What are bond ratings and why are they important? How does inflation affect interest rates? What...
What are bond ratings and why are they important? How does inflation affect interest rates? What is the term structure of interest rates?
a. If the level of interest rates increase (possibly due to an increase in expected inflation rates) for the overall eco...
a. If the level of interest rates increase (possibly due to an increase in expected inflation rates) for the overall economy, how do bond prices of existing, outstanding bonds react, and why? b. In other words it is a kind of debt security under which the seller is owed to the ... But higher the default risk premium, the more will be the required return 'r'. ... A 10-year bond has a face value of $1,000 with a coupon rate...
please work all parts. 2. Stock A has expected return of 14% and volatility 30%. Stock...
please work all parts.
2. Stock A has expected return of 14% and volatility 30%. Stock B has expected return of 8% and volatility 19%. The correlation between two stocks is -0.2. The risk free interest rate is 4% (a) Find the expected returns, volatilities, and Sharpe ratios of portfolios that maintain 100.0% investment in Stock A and 100(1-x)% in Stock B, where x is given in the following table. Volatility Expected return Sharpe ratio 0.8 0.9 1.0 (b) How...
Compared with higher inflation rates, a lower inflation rate will (Increase or Decrease?) the after-tax real...
Compared with higher inflation rates, a lower inflation rate
will (Increase or Decrease?) the after-tax real
interest rate when the government taxes nominal interest income.
This tends to (Encourage or Discourage?) saving,
thereby (Increasing or Decreasing) the quantity of
investment in the economy and (Increasing or Decreasing) the
economy's long-run growth rate.
Attempts: Keep the Highest: /2 8. Inflation-induced tax distortions Jacques receives a portion of his income from his holdings of interest-bearing government bonds. The bonds offer a real...
4. (a) How would you expect each of the following to affect the demand for money...
4. (a) How would you expect each of the following to affect the demand for money for the economy? Explain. (i) There is an increase in the competition among brokers, resulting in a lower commission charge for selling or holding of bonds or stocks. (ii) Financial investors become more concerned about increasing riskiness of stocks. (iii) The economy enters a boom period. (iv) Nominal interest rate increases. (b) For each of the scenarios described in (a), what will happen to...
What affect would reducing ncome tax rates have on the interest rates of unkelbords? A Interest rates would fail because the reduction in income tax rates would make the tax exempt privilege for municipal bonds loss valuable and reduce the demand for municipal bonds. O B. Interest rates would rise because the reduction in income tax rates would make the tax exempt privige formunicipal bondsfoss valuable and reduce the demand for municipal bonds OC Interest rates would rise because Treasury...
4. Interest rates and their effect on corporate profits and investment prices Interest rates affect corporate profits and security prices. Based on your understanding of the relationship between interest rates and corporate profits and security prices, identify which of the following statements is true and which are false. True False Ststements The higher the interest rate on a firm's debt, the lower will be the firm's profits, all other considerations remaining constant. An increase in the interest rate paid by...
Assume that the riskless rate of interest is 4.5% and that the stock price has a volatility of 30%. Given a current stock price of $100 and the fact that the stock does not pay any dividend: a) What is the probability that a European put option on the stock with an exercise price of $90 and a maturity date in one year will be exercised? Hint: You need to compute the probability that the stock price at maturity will...
please work all parts.
2. Stock A has expected return of 14% and volatility 30%. Stock B has expected return of 8% and volatility 19%. The correlation between two stocks is -0.2. The risk free interest rate is 4% (a) Find the expected returns, volatilities, and Sharpe ratios of portfolios that maintain 100.0% investment in Stock A and 100(1-x)% in Stock B, where x is given in the following table. Volatility Expected return Sharpe ratio 0.8 0.9 1.0 (b) How...
Compared with higher inflation rates, a lower inflation rate
will (Increase or Decrease?) the after-tax real
interest rate when the government taxes nominal interest income.
This tends to (Encourage or Discourage?) saving,
thereby (Increasing or Decreasing) the quantity of
investment in the economy and (Increasing or Decreasing) the
economy's long-run growth rate.
Attempts: Keep the Highest: /2 8. Inflation-induced tax distortions Jacques receives a portion of his income from his holdings of interest-bearing government bonds. The bonds offer a real...
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