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Macroeconomics: Principles, Problems, & Policies
20th Edition
ISBN: 9780077660772
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 15, Problem 10DQ
To determine
Leverage increase in the total size of the gain or loss from an investment.
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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.
Question 38
Long-term bonds are generally
I
less risky than short-term bonds and so pay higher interest.
less risky than short-term bonds and so pay lower interest.
more risky than short-term bonds and so pay higher interest.
more risky than short-term bonds and so pay lower interest.
Question 39
On which bond is default most likely?
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Table 1
1 year 2 years 3 years
1.30% 2.00%
2.40%
Table 1 shows the interest rates for Treasury securities of different maturities. Assume that the
liquidity premium theory is correct.
Refer to Table 10n this day, what did investors expect the interest rate to be on the one-year
Treasury bill two years from now if the term premium on a two-year Treasury note is 0.5% and
the term premium on a three-year Treasury note is 0.9%?
Select one:
OA 1.0%
O B. 1.3%
OC 1.5%
O D. 1.7%
Chapter 15 Solutions
Macroeconomics: Principles, Problems, & Policies
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