1. Explain the relationship between the bond market and the economy. 2: Explain what is the bond market indicating the state of the economy if the yield curve is flat. 3: Explain what is the bond market indicating the state of the economy if the yield curve is negative.
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1. Explain the relationship between the bond market and the economy.
2: Explain what is the bond market indicating the state of the economy if the yield curve is flat.
3: Explain what is the bond market indicating the state of the economy if the yield curve is negative.
4: Explain what is the bond market indicating the state of the economy if the yield curve is positive.
5. Explain the relationship between
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- Please explain the relationship between bond market and money market. Explain the process how an increase in the money supply by the Fed lowers the interest rate through the BOND MARKET to reach the new equilbrium interest rate. Explain the impact of increase in GDP on the interest rate.3. Draw and label the bond market graph covered in chapter 5. Then, using the graph, illustrate how the equilibrium price, yield to maturity, and quantity changes as a result of:a. An increase in expected inflation. Explain the movement from one equilibrium to another.b. A decrease in riskiness of bonds. Explain the movement from one equilibrium to another.c. An increase in the profitability of business investment. Explain the movement from one equilibrium to another.Use a different graph for each one and clearly label the axis and the shifting of curves. Explain clearly (in words and on the graph) whether the price and yield to maturity increased or decreased.Economics Suppose that there is excess supply of money at the current interest rate. During the adjustment process: a. interest rates will rise and bond prices will fall b. interest rates and bond prices will both rise c. interest rates and bond prices will both fall d. interest rates will fall and bond prices will rise Explain it correctly
- Find readings or videos on the internet with information on the factors that move the demand and supply curves of bonds, their effect on interest rates. Answer the following questions: 1. One way the Fed decreases the money supply is by selling bonds to the public. Using supply and demand analysis for bonds, show what effect this action has on interest rates. 2. Using the supply and demand of bonds, show why interest rates are pro-cyclical (they increase when the economy is expanding and decrease during recession). 3. What effect can a sudden increase in gold price volatility have on interest rates? 4. Using a supply and demand analysis for bonds, show the effect on interest rates when the risk of the bond increases.3. Suppose you are looking to buy a bond that promises to pay $600,000 on the date of maturity in one year. A. If you bid for the bond and wind up paying a price of $590,000, solve for the interest rate on this bond. Round your answer to four decimal places. b. If on the next day, you bid for the bond and pay a price of $575,000, solve for the interest rate on the bond now. Round your answer to four decimal places. C. What is the relationship between the bond price and the interest rate on the bond?A. Assume the interest rate in the bank is 6%. Should Apple Incorporated spend $10,000,000 to build a Research and Development facility that will yield $20 million in ten years? B. You will need $100,000 in seven years to buy a new car. How much money do you need to deposit in the bank now in order to have $100,000 seven years from now if the interest rate is 7%?
- Explain what is the bond market indicating the state of the economy if the yield curve is positive. 5. Explain the relationship between bond prices and interest rates and the inflation rates.Which bond should have the highest interest rate? A. Low quality bonds B. Medium quality bonds C. High quality bonds Which of the following statements is NOT true? A. Stock owners benefit from stock price increases B. Common stocks are not securities C. Stock prices tend to be very volatile D. Higher stock prices allow companies access to more capital What is the expected impact of a decline in the money supply to the US economy? A. Lower aggregate prices (deflation) B. Higher aggregate prices (inflation) C. There is no general relationship between the money supply and inflaton Which of the following is NOT a component of federal fiscal policy? A. Federal tax revenues B. Federal government expenditures C. Federal budget deficit D. All of the above are components of federal fiscal policy A strong US dollar tends to A. Reduce exports to foreign…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.
- 1. Nominal Interest Rates/Yield Curves Forecasters predict that the annual rate of inflation will continue to be 1.2% for the foreseeable future. The nominal interest rate of Treasury securities with different maturities is shown below: Maturity Nominal Rate of Return 2.2% 2.6% 3,2% 3.8% 4.5% 1 year 2 years 5 years 10 years 20 years a. Plot the yield curve using Excel b. What shape is the yield curve? What does it say about the future direction of interest rates under the expectations theory? c. Approximately what real interest rate do Treasury securities offer investors at each maturity? d. If the nominal rate of interest paid by every Treasury security above suddenly increased by 1.5%, without any change in inflationary expectations, what effect, if any, would it have on your answers to part c? Explain.7. If a yield curve looks like the one shown in the figure below, what is the market predicting about the movement of future short-term interest rates? What might the yield curve indicate about the market's predictions for the inflation rate in the future? Yield to Maturity Term to Maturity2. In year 1, the yield on 1-year T-bills is 1%, and on 10-year T-bond is 5%. In year 2, 1-year yield becomes 1.5%, and 10-year yield becomes 8.5%. 1. In year 2, does the market expect future short-term interest rate to rise or fall, compared with year 1? Why? Explain carefully. 2. Has the probability of a recession risen or decreased?