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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

It is a fact that the federal government (1) encouraged the development of the savings and loan industry, (2) virtually forced the industry to make long-term fixed-interest-rate mortgages, and (3) forced the savings and loans to obtain most of their capital as deposits that were withdrawable on demand.

  1. a. Would the savings and loans have higher profits in a world with a “normal” or an inverted yield curve? Explain your answer.
  2. b. Would the savings and loan industry be better off if the individual institutions sold their mortgages to federal agencies and then collected servicing fees or if the institutions held the mortgages that they originated?

a.

Summary Introduction

To explain: The possibility of the savings and loans has the higher interest rates or not.

Introduction:

Interest Rate: A rate at which a borrower is ready to pay and depositor is ready to receive the money is known as interest rate.

Normal Yield Curve: A yield curve which shows the low yield for the short-term bonds and high yield for the long-term debt is known as normal yield curve.

Inverted Yield Curve:  A yield curve which shows the high yield for the short-term bonds and low yield for the long-term debt is known as inverted yield curve.

Explanation
  • A normal yield curve shows the higher level of net income of savings and loans.
  • In that situation the cost ...

b.

Summary Introduction

To explain: The beneficial situation between to keep the mortgages or to sell out.

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