EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 9780100605930
Author: Blinder
Publisher: YUZU
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Chapter 31, Problem 3DQ
To determine
Explain the price of the mortgage backed security.
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Why are bonds somewhat risky to buy, even though they make predetermined payments based on a fixed rate of interest?
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EBK ECONOMICS: PRINCIPLES AND POLICY
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- what happens if consumers expect future interest rates to fall?arrow_forwardWhat causes the yield on a discount bond to exceed the coupon rate on a bond?arrow_forwardJohanna is an institutional investor who is looking to “park” some of her investment funds for a short time. How would you explain to Johanna why money market instruments might be useful for her?arrow_forward
- Which type of security has interest payments that are generally exempt from federal income taxes? A. Treasury bonds B. Municipal bonds C. Mortgage-backed securities D. Commercial loansarrow_forwardWhich type of risk are savings institutions least susceptible to? Interest rate risk Liquidity risk Credit risk Exchange rate risk Which of the following assets is a savings institution's smallest source of credit risk? Cash Repurchase agreements Mortgages Mortgage-backed securitiesarrow_forwardWhy do you think mortgage backed securities paid higher interest rates than other investments like time deposits, and US government bonds during the 2007/2008 financial crisis?arrow_forward
- A bond has a Macaulay duration of 10.00 and is priced to yield 8.0%. If interest rates go up so that the yield goes to 8.5%, what will be the percentage change in the price of the bond? Now, if the yield on this bond goes down to 7.5%, what will be the bond's percentage change in price? Comment on your findings. If interest rates go up to 8.5%, the percentage change in the price of the bond is nothing%. (Round to two decimal places.) If interest rates go down to 7.5%, the percentage change in the price of the bond is nothing%. (Round to two decimal places.) Comment on your findings. (Select the best answer below.) A. As interest rates decrease, the price of the bond decreases. As interest rates increase, the price of the bond increases. B. As interest rates increase or decrease, the price of the bond will always increase. C. As interest rates increase or decrease, the price of the bond remains the same. D. As interest rates…arrow_forwardWhen I expect interest rates to fall in the near future, I will be willing to Buy bonds at current prices. Buy bonds, but only if their price falls. Sell bonds now. Put my money in savings account rather than buy bonds.arrow_forwardRaphael observes that at the current level of interest ratesthere is an excess supply of bonds, and therefore he anticipates an increase in the price of bonds. Is Raphael correct?arrow_forward
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