1.
Stock and bond prices will fall as price is inversely proportional to rates
2.
Stock and bond prices will rise as price is inversely proportional to rates
3.
Stock prices will fall and bond prices could remain unchanged or rise
Your financial investments consist of US government bonds maturing in 10 years and shares in a...
Your financial investments consistent of U.S. government bonds which mature in 20 years and share of stock in a technology company. How would you expect each of the following news items to affect the value of your assets? Explain. (Chapter 11) a) Interest rates on newly issued government bonds fall b) Inflation is forecasted to be much higher than expected (Assume that your bonds pay a set amount. Their payments are not affected by the inflation rate) c) Below average...
Why would we see the prices on U.S. government bonds suddenly rise? Multiple Choice Bond prices can't rise or fall they are stable. If we had a sudden explosion of good economic news like lower unemployment, a booming stock market that returned average rates of return of 15 percent, or the signing of new peace treaties (i.e. Israel & Iran), then we would see bonds prices rise on U.S. government bonds. They would rise if there was suddenly lots of...
Why would we see the prices on US government bonds suddenly rise? Multiple Choice Bond prices can only rise if the US government pays more interest on these investments They would rise if there was suddenly lots of bad economics news like higher unemployment an increase in natural disasters like explding volcanoes, or the start of new wars le China attacks Taiwan), then we would see bond prices rise on US government bonds If we had a sudden explosion of...
If the rate of inflation increases from 3% to 6%, we would most likely expect that nominal interest rates will remain unchanged and the real interest rate will increase by 3%. nominal interest rates will increase by 6% and the real interest rate will fall by 3%. nominal interest rates will remain unchanged and the real interest rate will also remain unchanged as the risk of default will most likely increase. nominal interest rates, real interest rates and risk of...
Question 10 (3 points) The Fed engages in open market operations and sells government securities. The result is uncertain since more information is needed O lower interest rates higher interest rates interest rates remain unchanged since there is no reason to think bond prices changed
The Fed controls interest rates to either tighten or loosen the economy. When the Feds are needing to tighten the economy, they will raise the interest rates. When interest rates are changed, it sends a ripple effect through the entire financial market. When interest rates rise, cost of capital and borrowing increase. Consumers will borrow and spend less. This will lead to a slower economy and help to hedge inflation. However, the change in interest rates can affect the market...
Knowledge Check 01 Zeta Corporation issues $100,000 of 8% bonds maturing in 10 years on January 1, Year 1, when the market rate of interest is 9%. The bonds were issued at a discount, Market interest rates drop to 7% by December 31, Year 1. The company retires these bonds on December 31, Year 1. How much did it cost the company to retire them? Multiple Choice $106,595 $100,000 o oo $93,496
Use the following graph to answer questions 14 through 17. THE MARKET FOR BONDS (1.R.) P Do Di D2 14. An increase in demand from D, to D, could be the result of: A. Expected inflation B. A decrease in interest rates C. An increase in interest rates D. Lower expected returns in the stock market 15. As a result of an increase in demand from D, to DInterest rates in the economy A. Fall B. Rise C. Remain the...
On January 1, Year 1. a company issues $100.000 of 8% bonds maturing in 10 years when the market rate of interest is 9%. The bonds were issued at a discount. Market interest rates drop to 6% by December 31, Year 2. The company retires these bonds on December 31, Year 2. Which of the following is true? Multiple Choice The bonds can be retired at their carrying value The company will incur a loss The company will incur again...
On January 1, Year 1. a company issues $100.000 of 8% bonds maturing in 10 years when the market rate of interest is 9%. The bonds were issued at a discount. Market interest rates drop to 6% by December 31, Year 2. The company retires these bonds on December 31, Year 2. Which of the following is true? Multiple Choice The bonds can be retired at their carrying value The company will incur a loss The company will incur again...