PFIN 7:STUDENT EDITION-MINDTAP (1 TERM)
7th Edition
ISBN: 9780357033647
Author: Billingsley
Publisher: CENGAGE L
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Chapter 14, Problem 10FPE
Summary Introduction
To explain: Buying a variable
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2. A. Define interest rate risk and reinvestment risk.
B. Why do banks and life insurance companies/pension funds have different investment strategies and different tolerances to interest rate risk and reinvestment risk?
What is a “liquidity premium?” When do investors increase their attention to such a premium?
Explain how alternative investments can act as a hedge against inflation.
Chapter 14 Solutions
PFIN 7:STUDENT EDITION-MINDTAP (1 TERM)
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- Which of the following investment has the lowest risks and lowest returns! EE savings bonds. Money market savings accounts. Real estate. Exchange-traded funds.arrow_forwardHow do you think participations affect the riskiness of a loan?arrow_forwardWhen you have a fixed investment horizon, it is important to maximize your earnings. You must understand the risks and returns of the security and the risk factors that can affect the price of the bond. If an investor has a fixed investment horizon, what type of security can be used to minimize both the price risk and the reinvestment risk? Does this security protect the real payoff? Explain.arrow_forward
- Writing receiver swaptions is a good interest rate risk hedge instrument for housing corparations like Vestia. TRUE OR FALSE EXPLAİN PLEASEarrow_forwardIn what ways does an annuity differ from other types of investments? Separate between a "ordinary annuity" and a "annuity due," and explain why.arrow_forwardThe maximum rate of return needed to induce an investor to purchase or hold a security is referred to as the investor's required rate of return. OTRUE. FALSEarrow_forward
- Differentiate between “buying a security on a margin” and “selling a security short”. When would an investor consider using each of these strategies?arrow_forwardAs an investor now or in the future, what are steps that you would take to mitigate the risk of interest rate risk? Do you believe age and current economic status play a role in how much interest rate risk investors can tolerate?arrow_forwardordinary annuity, annuity due, perpetuity, growing annuity or amortization topics. Then describe steps involved in calculating it and provide an example using your financial calculator. there is a difference between EAR and APR when compounding interest. Describe this difference. Assume you are a financial investor and have to advise a customer on the difference. How would you describe the differences to them and what would you advise?arrow_forward
- how does interest rate risk relates to the washinton Mutual Casearrow_forwardWHAT IS A SMART CONTRACT? HOW CAN IT BE USED IN FINANCE?arrow_forwardWhat type of security can be used to minimize both price risk and reinvestment riskfor an investor with a fixed investment horizon? Does this security protect the realpayoff? Explain.arrow_forward
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