Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 31, Problem 13E
To determine
To explain:
The reason for decline in both stock and
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Explain why you agree or disagree with the following statements:A. “A bond issued by a corporation of the highest credit rating can qualify as a risk-free asset.”B. “A five-year U.S. Treasury note would qualify as a risk-free asset because of its guarantee by the U.S. government.”
Stock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market. What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates
a.
fall in reaction to the decreased demand for bonds.
b.
rise in reaction to the increased demand for bonds.
c.
fall in reaction to the increased demand for bonds.
d.
rise in reaction to the decreased demand for bonds.
Trace the impact of selling more bonds by government on bond prices, interest rates, investment, aggregate demand, real GDP, and the price level.
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- How did the stock market boom led to the Housing bubble and the 2008 Financial Crises? Draw three parallels between the 2008 Financial Crisis and the 2020 Pandemic Recession If the risk associated with a company goes up, what would you expect to happen to the price of its stock? And if the risk associated with a company declines, what would you expect to happen to the price of its stock?arrow_forwardDefine and discuss the portfolio-balance effect in terms of Quantitative Easing and its impact on bond and stockarrow_forwardAnswer the question based on the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond increases to $1,250, the interest rate will Multiple Choice rise to 12.5 percent. fall to 2.5 percent. fall to 8 percent. rise to 18 percent. fall to 1.25 percent.arrow_forward
- financial markets that function well: a. increase the ease of converting common stocks into bonds b. reduce riskiness of most assets continually c. continually increase the liquidity of most assets d. including available information in asset pricesarrow_forwardExplain at least two important roles played by a safe asset in a financial market.arrow_forwardWhat is an economically meaningful corporate event from a shareholders’ ownership perspective? a. stock buyback b. stock split c. stock dividendarrow_forward
- Any company in the U.S. that plans to issue stocks or bonds is required by the Securities and Exchange Commission to provide its balance sheet and income statement to the public. Why is this requirement in place? What kind of information that would be useful to potential investors can be found in these financial statements?arrow_forwardRisk premiums on corporate bonds are usually anticyclical; that is, they decrease during business cycle expansions and increase during recessions. Why is this so?arrow_forwardWhy do you think that U.S. banks are prohibited from holding equity as part of their own portfolios? Is this a good thing or a bad? Many politicians are seeking to eliminate the Dodd-Frank Act, while others seek to strengthen it. On which side are you, and why?arrow_forward
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