Examination One Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre‚ a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through
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Chapter 4 Questions 1. Explain why you would be more or less willing to buy a share of Polaroid stock in the following situations: a. Your wealth falls. Less willing because your wealth falls b. You expect it to appreciate in value. More because its relative expected value increases c. The bond market becomes more liquid. Less because it becomes less liquid relative to bonds d. Prices in the bond market become more volatile. More because it becomes less risky relative to bonds. 2. Explain why you
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market rates Example: Rate may be adjusted annually to the current T bill rate plus 2% * Major risk involved for floaters is due to the changes in the firm’s financial strength * Yield spread is fixed over life of security however if the firm’s strength deteriorates then investors would demand a greater yield premium * This makes the price of bonds to fall * Floaters do not adjust to changes in financial condition of the firm * For bonds‚ the price an investor would be willing
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legislation will not affect the supply schedule of funds. Assume a perfect world in which inflation is expected to be zero‚ funds suppliers and demanders have no liquidity preference‚ and all outcomes are certain.) a. Draw the supply curve and the demand curve for funds using the current data. (Note: Unlike the functions in Figure 6.1 on page 223‚ the functions here will not appear as straight lines.) b. Using your graph‚ label and note the real rate of interest using the current data.
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6.1 Risk Structure of Interest Rates 1) The risk structure of interest rates is A) the structure of how interest rates move over time. B) the relationship among interest rates of different bonds with the same maturity. C) the relationship among the term to maturity of different bonds. D) the relationship among interest rates on bonds with different maturities. 2) The risk that interest payments will not be made‚ or that the face value of a bond is
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6 Most Important Things to Consider When Choosing a Broker The retail forex market is so competitive that just thinking about having to sift through all the available brokers can give you a major headache. Choosing which broker to trade with can be a very overwhelming task especially if you don’t know what you should be looking for. In this section‚ we will discuss the qualities you should look for when picking a broker. 1. Security The first and foremost characteristic that a good broker must
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Morton & Handley Case Study a. What are the four most fundamental factors that affect the cost of money‚ or the general level of interest rates‚ in the economy? The four most fundamental factors that affect the cost of money are: production opportunities‚ time of consumption‚ risk and inflation. The interest rate given to savers is based on: the rate of return on invested capital‚ savers time preferences for current versus future consumption‚ the riskiness of the loan‚ the expected future
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Integrated Case 6-21 Morton Handley & Company Interest Rate Determination Maria Juarez is a professional tennis player‚ and your firm manages her money. She has asked you to give her information about what determines the level of various interest rates. Your boss has prepared some questions for you to consider. A. What are the four most fundamental factors that affect the cost of money‚ or the general level of interest rates‚ in the economy? Answer: [Show S6-1 and S6-2 here.] The four most
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lending and borrowing. There are two ways a bond delivers its return. (Please note that when comparing the yield of different bonds‚ only the terms to maturity vary. All other characteristics are identical.) The first way is to offer a coupon every period and the principle along with a coupon when the bond matures. Face value is denoted by D. coupon payment by C‚ maturity by N‚ price by P‚ yield by Y. The log of each variable is expressed in lower case. Now‚ we can calculate the price of bond with
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current yield. * Compare the current yield to the yield to maturity. For which bonds is current yield closer in value to the yield to maturity? Explain 2. Term Structure of Interest Rates: Go to http://www.yieldcurve.com/MktYCplotter.asp This web site allows you to plot the yield curves for UK Gilts and US Treasuries for different periods. 1. List the three facts about the term structure of interest rates 2. Select a period and print a plot of an upward yield curve. Make
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