Suppose you are holding a 7 year Treasury bond with coupon rate of 5%. With expectations...
Suppose you are holding a 7 year Treasury bond with coupon rate of 5%. With expectations that economy will slow down the Federal Reserve cuts federal funds rate and other interest rates decrease. Newly issued bonds have lower coupon rates. Which is most likely to happen?
A. increase market demand for your 5% coupon bond.
B. decrease market demand for your 5% coupon bond.
C. decrease market supply of your 5% coupon bond.
D. increase market supply of your 5% coupon bond.
Homework Answers
Since 5% coupon bond offers better returns as compared to prevailing offers, market demand for 5% coupon bond will increase.
Correct option is
A) increase market deamnd for your 5% coupon bond.
Add Answer to:
Suppose you are holding a 7 year Treasury bond with coupon rate
of 5%. With expectations...
5. Suppose a two year bond has a coupon of 15%, with a face value of...
5. Suppose a two year bond has a coupon of 15%, with a face value of $121. The current market interest rate is 10% a. What is the present discounted value of $121 if the interest rate stays at 10% for the foreseeable future? (Hint: what is the amount of money you need to put in the bank now to get $121 in two years at an interest rate of 10%) b. What is the price of this bond if...
6. Suppose that you purchase a 2 year coupon bond at the time it is issued...
6. Suppose that you purchase a 2 year coupon bond at the time it is issued for $1100. The face value of the bond is $1000, with annual coupon payments of $80. a. What is the bond's "coupon rate"? b. What is the bond's "current yield"? C. What is the bond's (nominal) "yield to maturity"? d. If you hold the bond for 1 year and sell it for $1035 (after collecting the first coupon payment), what is your "holding period...
Suppose the Federal Reserve is presently holding $4.2 trillion in U.S. Treasury bonds. If the Fed...
Suppose the Federal Reserve is presently holding $4.2 trillion in U.S. Treasury bonds. If the Fed decides to sell $1 billion of these bonds to the public, we can expect reserves in the banking system to and we can expect the money supply to ho increase: increase increase: decrease decrease: decrease decrease: increase
Suppose the Federal Reserve is presently holding $4.2 trillion in U.S. Treasury bonds. If the Fed...
Suppose the Federal Reserve is presently holding $4.2 trillion in U.S. Treasury bonds. If the Fed decides to sell $1 billion of these bonds to the public, we can expect reserves in the banking system to _____________ and we can expect the money supply to _____________. Group of answer choices increase : increase decrease : decrease increase : decrease decrease : increase
If the federal reserve wants to stimulate the U.S. economy, it will use open market operations...
If the federal reserve wants to stimulate the U.S. economy, it will use open market operations to: A. Buy treasury securities from its dealer network. B. Lower the fed funds rate C. Both of the abov D. None of the above Which of the following statements is true concerning market rates? A. a raising market interest rates generally stimulates the economy B. lowering market interest rates generally slows the economy C. Both of the above D. None of the above...
3.2% 2.5% 0/1 pt Question 32 Assume that the current interest rate on a one-year bond...
3.2% 2.5% 0/1 pt Question 32 Assume that the current interest rate on a one-year bond is 8 percent, the current rate on a two-year bond is 10 percent, and the current rate on a three-year bond is 12 percent. If the expectations theory of the term structure is correct, what is the one-year interest rate expected during Year 3? (Base your answer on an arithmetic average rather than a geometri average.) 12% 16% 13% Incorrect. The yield on any...
Question 25 (12 points) Suppose the required reserve ratio is 5%. If the Fed sells $50...
Question 25 (12 points) Suppose the required reserve ratio is 5%. If the Fed sells $50 million worth of Treasury bonds, what will happen to the money supply? Describe any calculations made to support your answer. Based on your answer above, what will happen to interest rates in the bond market? Explain in detail how you came up with this response. Based on your answers above, what will happen to the federal funds rate? Explain in detail how you came...
Interest Rate Expectations, Economic Growth, and Bond Financing Recall that if the economy continues to be...
Interest Rate Expectations, Economic Growth, and Bond Financing Recall that if the economy continues to be strong, Carson Company may need to increase its production capacity by about 50 percent over the next few years to satisfy demand. It would need financing to expand and accommodate the increase in production. Recall that the yield curve is currently upward sloping. Also, recall that Carson is concerned about a possible slowing of the economy because of potential Fed actions to reduce inflation....
Assume that the ‘expectations theory’ fully explains the Treasury Bond Yield Curve. The 10-year zero-coupon bond...
Assume that the ‘expectations theory’ fully explains the Treasury Bond Yield Curve. The 10-year zero-coupon bond maturing in 2030 has a yield-to-maturity (YTM) of 3.5%. Assume that instead of simply buying the 10 year, you decide you will: • buy a 5-year bond today, then, when that bond matures in 2025, • then, you will buy a new 5-year bond that starts in 2025 and will mature in 2030. Scenario A – Upward sloping yield curve. a) if today’s 5...
The Federal Reserve purchases U.S. Treasury securities to: increase interest rates Oincrease the money supply O...
The Federal Reserve purchases U.S. Treasury securities to: increase interest rates Oincrease the money supply O decrease expected inflation. increase tax rates reduce credit availability If a bond's yield to maturity exceeds its coupon rate, the bond's: maturity value is more than its face value price must be less than its par value current yield is equal to the capital gain on the maturity of the bond. current yield is equal to the coupon rate. maturity value is less than...
5. Suppose a two year bond has a coupon of 15%, with a face value of $121. The current market interest rate is 10% a. What is the present discounted value of $121 if the interest rate stays at 10% for the foreseeable future? (Hint: what is the amount of money you need to put in the bank now to get $121 in two years at an interest rate of 10%) b. What is the price of this bond if...
6. Suppose that you purchase a 2 year coupon bond at the time it is issued for $1100. The face value of the bond is $1000, with annual coupon payments of $80. a. What is the bond's "coupon rate"? b. What is the bond's "current yield"? C. What is the bond's (nominal) "yield to maturity"? d. If you hold the bond for 1 year and sell it for $1035 (after collecting the first coupon payment), what is your "holding period...
Suppose the Federal Reserve is presently holding $4.2 trillion in U.S. Treasury bonds. If the Fed decides to sell $1 billion of these bonds to the public, we can expect reserves in the banking system to and we can expect the money supply to ho increase: increase increase: decrease decrease: decrease decrease: increase
3.2% 2.5% 0/1 pt Question 32 Assume that the current interest rate on a one-year bond is 8 percent, the current rate on a two-year bond is 10 percent, and the current rate on a three-year bond is 12 percent. If the expectations theory of the term structure is correct, what is the one-year interest rate expected during Year 3? (Base your answer on an arithmetic average rather than a geometri average.) 12% 16% 13% Incorrect. The yield on any...
Question 25 (12 points) Suppose the required reserve ratio is 5%. If the Fed sells $50 million worth of Treasury bonds, what will happen to the money supply? Describe any calculations made to support your answer. Based on your answer above, what will happen to interest rates in the bond market? Explain in detail how you came up with this response. Based on your answers above, what will happen to the federal funds rate? Explain in detail how you came...
The Federal Reserve purchases U.S. Treasury securities to: increase interest rates Oincrease the money supply O decrease expected inflation. increase tax rates reduce credit availability If a bond's yield to maturity exceeds its coupon rate, the bond's: maturity value is more than its face value price must be less than its par value current yield is equal to the capital gain on the maturity of the bond. current yield is equal to the coupon rate. maturity value is less than...
Most questions answered within 3 hours.
-
Calculate the pH of each of the following solutions.
0.50 M HBr
3.1×10−4 M KOH
4.2×10−5...
asked 16 minutes ago -
For the year ended December 31, Depot Max’s cost of merchandise
sold was $85,600. Inventory at the...
asked 16 minutes ago -
Week 10 - Professional Memo Assignment
Professional Memo Assignment
Your mission for this week, should you...
asked 21 minutes ago -
Write a Python program that stores the data for each
player on the team, and it...
asked 31 minutes ago -
In
the last 3 months, mike never knows when he is going to get his
allowance...
asked 55 minutes ago -
Is Ca(OH)2 a Bronsted base, Lewis base, or both? Why?
asked 45 minutes ago -
1A- Why don’t voters complain about U.S. tariffs on imported
sugar?
Because sugar is only a...
asked 54 minutes ago -
Cash Payback Period
Primera Banco is evaluating two capital investment proposals for
a drive-up ATM kiosk,...
asked 52 minutes ago -
Create a button in Swift (Xcode) that will create a charge,
create a charge using Stripe's...
asked 52 minutes ago -
The reaction rate of CO and NO2 in the reaction
CO(g) + NO2(g) → CO2(g) +...
asked 53 minutes ago -
Imagine that a chemist puts 6.40 mol each of
C3H8 and O2 in a 1.00-L container...
asked 1 hour ago -
How much money should be invested today in order to have $8340
at the end of...
asked 1 hour ago