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- As a result of this flight to liquidity, the interest rate in the 20-year Treasury bonds market ________________ ( decreases/ remains the same/ increases) , while the interest rate in the T-bill market ________________ ( decreases/ remains the same/ increases) . Consequently, the default risk premium spread ________________ ( decreases/ remains the same/ increases)According to the portfolio theroies of money deman , which of the following statement is true? an increase in the epected rate of inlfation increases the deman for money an increase in the real return of stock increases the demand of the money a decrease in wealth increase the deman for money a decrease in the real return on bonds increases the demand for moneyThe table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond. Year One-Year Bond Rate Multiyear Bond Rate 1 2.00% 2.00% 2 3.00% 3.00% 3 6.00% 5.00% 4 7.00% 7.00% 5 10.00% 8.00% The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places.) l Subscript 11 = (enter your response here)% l Subscript 21 = (enter your response here)% l Subscript 31 = (enter your response here)% l Subscript 41 = (enter your response here)% l Subscript 51 = (enter your response here)%
- A large money center bank uses the US treasury yield curve to determine the appropriate level for its lending rates. To compensate for the costs of making a loan, the bank needs to charge 1.8% point more than the expected future interest rate on a Treasury security with the same maturity if it is to make a profit. The manager is considering a loan request from a customer seeking a one year loan that starts 2 years from today. If the two-year Treasury Strip rate is 4.1% and the three-year Treasury strip rate is 5.5%, at what minimum rate should the manager be willing to make the loan commitment?Enter your answer as a % to two decimal places. Assume the expectation theory of rates is valid and all liquidity premiums are zero.a) Interest rates have plunged following the monetary response to the COVID-19 economic crisis similar to the 2008 economic crisis. This policy change or response is certainly expected to affect investment portfolios, even the ones without any bond market exposure. As it is well-known fact that interest rates deeply influence economic and financial activities, capital flows, and retirement planning. • What do you expect regarding this monetary response and low interest rates impact on the capital/equity market? Discuss lengthy.• In reaction to the Covid-19 pandemic, the Federal Reserve as well other central banks implemented a thorough and comprehensive action plan to fuel the growth and stabilize financial markets. It can be said that the most noticeable element of the plans was zero interest rate policy. Needless to say that this is a monetary policy instrument that decreases the cost of capital in the system. It is argued that this zero interest rate policy is required and justified…: Show graphically the effect of a rise in expected inflation on interest rates in the bond market.
- Suppose the interest rate rises. Using both the supply and demand for bonds and the liquidity preference frameworks, discuss whether this event is likely to reflect good economic news or is a sign of troubleNeed help. Assume that securitization combined with borrowing and irrational exuberance in Hyperville have driven up the value of asset-backed financial securities at a geometric rate, specifically from $4 to $8 to $16 to $32 to $64 to $128 over a six-year time period. Over the same period, the value of the assets underlying the securities rose at an arithmetic rate from $4 to $6 to $8 to $10 to $12 to $14. If these patterns hold for decreases as well as for increases, by how much would the value of the financial securities decline if the value of the underlying asset suddenly and unexpectedly fell by $6? Instructions: Give your answer as a whole number.470 - q 21 if one expected interest rates to fall, one would prefer to own bonds with a. long durations and high convexity b. long durations and low convexity c. short durations and high convexity d. short durations and low convexity e. none of above
- Summarize the effect of :a)an open market purchase of securities by the TCMBb) an open market sale of securities by the TCMBOver the next three years, the expected path of 1 year interest rates is 1, 2, and 1 percent, and the 1 year, 2 year, and 3 year term premia are 0, 0.2, and 0.5 percent, respectively. Using the information, the liquidity premium theory of the term structure predicts that the current interest rate on 3 year bond is ____%An economist has estimated that, near the point of equilibrium, the demand curve and supply curve for 1 year bonds can be estimated using the following equations:Demand: Price = (-0.5)*Quantity + 930Supply: Price = Quantity + 500Assume the face of the bond is $1,000.1. What is the expected equilibrium price and quantity of bonds in this market to 4 decimal places? Price$ Quantity 2. Given your answer to part (a), which is