ECON 3323-002 Money & Banking Chapter 5 homework

using the formula R equals F minus P divided by P, determine the yield to maturity of a 1200 dollar face value discount bond that changes from 900 to 875

3.8 percent

it has been said that "no one who is risk-averse will ever buy a security that has a lower expected return, more risk, and less liquidity than another security". is this statement true, false, or uncertain?

True. For a risk averse person, those characteristics make a security less desirable.

suppose uncertainty about the future will lead investors to move to the short end of the market. what is the effect of this shock on the short term bond market

as a result, the difference between short term and long term bonds yields will increase, moving to the right

the demand curve and supply curve for one year discount bonds with a face value of 1030 dollars are represented by the following equations:

bond demand: price = -0.8Quantity + 1,100; bond supply: price = quantity + 700

suppose you visit with a financial advisor, and you are considering investing some of your wealth in one of three investment portfolios. to maximize your expected return, you should choose

commodities

suppose that, as a result of monetary policy actions, the federal reserve sells 110 bonds that it holds. assume that bond demand and money demand are held constant. what is true?

if the fed increases the supply of bonds in the market by 110, at any given price, the bond supply equation will become price = quantity + 590

if the interest rates rise, this opportunity cost will ____ and individuals will hold ___ cash balances

increase; smaller

what will happen to interest rates if the public suddenly expects a large increase in stock prices

interest rates will rise because the expected increase in stock prices raises the expected return on stocks relative to bonds and so the demand for bonds decreases

what effect will a sudden increase in the volatility of gold prices have on interest rates

interests rates will decrease because bonds will become relatively less risky, which increases the demand for bonds

there is a perceived increase in the riskiness of bonds. which market is likely to represent corporate B-A-A bonds

market A

there is a perceived increase in the riskiness of bonds. which market is likely to represent the 10-year treasury note

market C

for every one thousand of annual income, households maintain average cash balances, or demand for money, of two hundred. how will growth in GDP affect interest rates, holding the money supply constant

money demand will shift righ

if the next chair of th federal reserve board has a reputation for advocating an even slower rate of money growth that the current chair, what will happen to interest rates

slower money growth will lead to a liquidity effect, which will raise interest rates; however, the lower income, price level, and inflation will tend to lower interest rates

suppose you visit with a financial advisor, and you are considering investing some of your wealth in one of three investment portfolios. if you are risk averse and had to choose between the stock or the bond investments, you would choose

the bond portfolio because there is less uncertainty over the outcome

if the economy's GDP expands,

the demand for money will increase, shifting the money demand curve to the right

suppose there is a downward revision of inflation expectations. what is the effect of this shock on bond yields

the effect of this shock will likely cause bond yields to decrease. bond supply will shift to the left

yield to maturity is

the interest rate that equates the present value of cash flow payments received from a debt instrument with its value today

why is the opportunity cost of holding two thousand in cash if the relevant interest rate is eight percent

the opportunity cost is 160 dollars

will there be an effect on interest rates if brokerage commissions on stocks fall?

yes, interest rates would rise because stocks become more liquid than before, which would reduce the demand for bonds.

would you be more or willing to buy a share of microsoft stock in the following situations

your wealth falls: less; you expect the stock to appreciate in value: more; the bond market become more liquid: less; you expect gold to appreciate in value: less; prices in the bond market become more volatile