Homework Answers
Answer - Market risk
Market risk or undiversifiable risk is the risk that applies to the overall portfolio and not just a single security. It can't be removed or eliminated and also the market compensates investor for this risk.
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Risk stemming from factors that would affect most firms, such as war, inflation, recessions and high...
If the rate of inflation increases from 3% to 6%, we would most likely expect that...
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...
1. What does the interest rate represent? How would a period of high inflation affect interest...
1. What does the interest rate represent? How would a period of high inflation affect interest rates? In your own words, what does the “real rate of interest” mean? 2. What are the three pieces that make up the returns on Treasury securities? The first term you explained above. Why is an investor compensated for the second and third terms? 3. Fill in the blanks for the following with either “higher” or “lower”: Bonds with higher levels of risk result...
Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy
Macroeconomic factors that influence Interest rate levelsApart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: StatementsTrueFalseActions that lower short-term interest rates will always lower long-term interest rates. The Federal Reserve Board has a significant influence over the level of economic activity, inflation, interest rates in...
Inflation, recession, and high interest rates are economic events that are best characterized as being a. among the fact...
Inflation, recession, and high interest rates are economic events that are best characterized as being a. among the factors that are responsible for market risk. b. irrelevant except to governmental authorities like the Federal Reserve. c. systematic risk factors that can be diversified away. d. company-specific risk factors that can be diversified away. e. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers.
Several factors affect the exchange rate of a currency with another currency. Which of the following...
Several factors affect the exchange rate of a currency with another currency. Which of the following statements are true about the factors that have an impact on exchange rates? Check all that apply. When a government limits imports and restricts foreign exchange transactions, its currency's value tends to increase relative to other currencies. An increase in inflation tends to increase the currency's value with respect to other currencies with lower inflation. If a government intends to prevent its currency's value...
Average: 4 9. Macroeconmic factors that influence interest rate levels Aa Aa Apart from risk components,...
Average: 4 9. Macroeconmic factors that influence interest rate levels Aa Aa Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements When the Fed increases the money supply, short-term interest rates tend to decline. Actions that lower short-term interest rates will...
Compensation for risk is an essential function of financial markets and, as such, disclosure of risk...
Compensation for risk is an essential function of financial markets and, as such, disclosure of risk occurs routinely in required financial disclosures. Senior management officials must be able to assess risks that affect the firms they manage, and suggest ways of addressing risk. This task is designed to help you identify the nature of market or “systematic” risks that may affect firms generally, alongside idiosyncratic risks that may that characterize firms in different industries. The activity will require you to...
Inflation, recession, and high interest rates are economic events that are best characterized as being a...
Inflation, recession, and high interest rates are economic events that are best characterized as being a systematic risk factors that can be diversified away. b. company-specific risk factors that can be diversified away. c. among the factors that are responsible for market risk. d. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. c. irrelevant except to governmental authorities like the Federal Reserve. Calculate the required rate of return...
If the 10-year Treasury bond rate is 9.0%, the inflation premium is 2.0% and maturity risk...
If the 10-year Treasury bond rate is 9.0%, the inflation premium is 2.0% and maturity risk premium on 10-year bond is .3%: Why would an investor purchase a treasury bond, versus a technical corporate stock like Apple or Netflix? Please advise in detail. If an investment has a high standard deviation, what does this tell the investor? How does inflation affect interest rates on bonds and other types of debt securities? Please advise.
The real risk-free rate is 2.5% and inflation is expected to be MATURITY RISK PREMIUM 2.75%...
The real risk-free rate is 2.5% and inflation is expected to be MATURITY RISK PREMIUM 2.75% for the next 2 years. A 2-year Treasury security yields 5.55%. What is the maturity risk premium for the 2-year security? 65 6-6 INFLATION CROSS-PRODUCT An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. If the real risk-free...
Several factors affect the exchange rate of a currency with another currency. Which of the following statements are true about the factors that have an impact on exchange rates? Check all that apply. When a government limits imports and restricts foreign exchange transactions, its currency's value tends to increase relative to other currencies. An increase in inflation tends to increase the currency's value with respect to other currencies with lower inflation. If a government intends to prevent its currency's value...
Average: 4 9. Macroeconmic factors that influence interest rate levels Aa Aa Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements When the Fed increases the money supply, short-term interest rates tend to decline. Actions that lower short-term interest rates will...
Inflation, recession, and high interest rates are economic events that are best characterized as being a systematic risk factors that can be diversified away. b. company-specific risk factors that can be diversified away. c. among the factors that are responsible for market risk. d. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. c. irrelevant except to governmental authorities like the Federal Reserve. Calculate the required rate of return...
The real risk-free rate is 2.5% and inflation is expected to be MATURITY RISK PREMIUM 2.75% for the next 2 years. A 2-year Treasury security yields 5.55%. What is the maturity risk premium for the 2-year security? 65 6-6 INFLATION CROSS-PRODUCT An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. If the real risk-free...
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