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- Explain why you would be more or less willing to buylong-term Delta Air Lines bonds under the followingcircumstances:a. The company just released its financial statements, indicating that income decreased and liabilities increased.b. You expect a bull market in stocks (stock prices areexpected to increase).c. You have analyzed your country’s monetary policyand expect interest rates to decrease.d. Brokerage commissions on bonds fall.e. Your income and wealth increased over the last two yearsPredict what will happen to interest rates on a corporation’s bonds if the federal government guaranteestoday that it will pay creditors if the corporation goesbankrupt in the future. What will happen to the interestrates on Treasury securities?What is meant by "demand deposits"? O a) Bank accounts where you can't withdraw money by writing a check, but can withdraw the money at a bank-or can transfer it easily to a checking account. O b) An institution that operates between a saver with financial assets to invest and an entity who will receive those assets and pay a rate of return. c) Deposits in banks that are available by making a cash withdrawal or writing a check. C PRECEDENS 22 d) A bank's liabilities can be withdrawn in the short term while its assets are repaid in the long term.
- Suppose that the Bank of Canada engages in monetary tightening, raising its Overnight Rate Target from 0.25 to 4 percent, so as to ‘build back better.’ (c) Why would it make no sense for any commercial bank to provide a mortgage for an interest rate lower than 4.25 percent? (d) Why are interest rates on mortgages likely to be far above 4.25 percent?• Suppose that a person’s wealth is $50,000 and that her yearlyincome is $60,000. Also suppose that her money demand functionis given by Md = $Y10.35 - i2Derive the demand for bonds. Suppose the interest rate increases by 10 percentage points. What is the effect on her demand for bonds?What are the effects of an increase in income on her demand for money and her demand for bonds? Explain in wordsExplore the assertion regarding the state ofFinancial Markets, both globally and within the Caribbean region, evaluating whether they arecharacterized by market perfection or imperfection. Argue in favorthat markets are perfect , allowing for a comprehensive examination ofthe topic. To enhance the analysis of key points in the subject argument, it is imperative to employrelevant finance theories or concepts which either validate or refute the EMH. These concepts serveas a robust framework for understanding financial phenomena. By leveraging established concepts,one can systematically evaluate the evidence presented, thereby bolstering the argument'scredibility and depth.
- There is a recent issuanceof asignificant number of treasury sharesat a higher interest rate. How wouldthis affect businesses: A. Individuals and businesses are encouraged to save, hence businesses will expect lower demand and lower prices.B. Individuals and businesses are encouraged to save, hence businesses will expect higher demand and lower prices.C. Individuals and businesses are encouraged to spend, hence businesses will expect lower demand and lower prices.D. Individuals and businesses are encouraged to spend, hence businesses will expect higher demand and higher prices.Suppose a bank discovers that its reserves will temporarily fall slightly short of those legally required. How might it remedy this situation through the Federal funds market? Now assume the bank fifinds that its reserves will be substantially and permanently defificient. What remedy is available to this bank? (Hint: Recall your answer to question 4.)Problem 17-03 (algo) Suppose that a risk-free investment will make three future payments of $500 in 1 year, $500 in 2 years, and $500 in 3 years. Instructions: Round your answers to 2 decimal places. a. If the Federal Reserve has set the risk-free interest rate at 16 percent, what is the proper current price of this investment? $ b. What is the price of this investment if the Federal Reserve raises the risk-free interest rate to 18 percent? $
- (1) Why would a company’s financial managers wantto pay attention to the federal funds rate? (2) Ratherthan promising to support any too-big-to-fail banks,could the federal government instead simply warneveryone that doing business with one of these firmsis risky? Why or why not?Explain how the following events will affect the demandfor money according to the portfolio theories of moneydemand:a. The economy experiences a business cycle contraction.b. Brokerage fees decline, making bond transactionscheaper.c. The stock market crashes. (Hint: Consider both theincrease in stock price volatility following a marketcrash and the decrease in wealth of stockholders.)Suppose the U.S. economy began to grow morerapidly than other countries in the world. What would bethe likely impact on U.S. financial markets as part of theglobal economy?
