8. Changes in supply and demand for bondsIdentify which side of the bond market is affected by each of the following changes.ChangeWealth levels in societyGovernment budget deficitsLiquidity of bondsBusiness expectationsInformation costs incurred by investorsRelative returns on bondsExpected inflationInvestment tax treatmentRelative riskiness of bondsSupplyDemand00оSuppose that business expectations in the economy decline.Adjust the following graph to illustrate the effect of the change on the bond market.PRICEQUANTITYSupplyDemandDemandSupply

Referenceshttps://www.investopedia.com/articles/stocks/09/how-interest-rates-affect-markets.asp

Answered: 8. Changes in supply and demand for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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24)To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government-sponsored enterprises (GSEs) called, ________. The GSEs role was to sell bonds to investors and use the funds to purchase mortgages from _______. Select one: a. the Fed and the Treasury Department; Households b. the Fed and Treasury Department; Banks c. Fannie Mae and Freddie Mac; Households d. Fannie Mae and Freddie Mac; Banks e. Fannie Mae and Freddie Mac; Investment Banks
1. Suppose that the marginal mortality rate for C rated debt is 2% in 2018, 8% in 2019, and 10% in 2020. a. Caleulate the cumulative mortality rate and the cumulative survival rate for 2020. b. You invested in $20 million of C rated debt at the beginning of 2018. Calculate your expected default loss for each year.
7. The Federal Reserve has raised the Federal Funds rate by 3.75 percent within the past year. Ifa bank had capital of 10 percent when the Fed began raising rates and has no loans at risk ofdefault, under what circumstances will its capital position be compromised? Please be specific.8. How do rising interest rates affect the size of real estate loans that lenders will advance?Again, be specific.9. Mortgage rates have risen by about 4 percent over the past year. Does that mean that theacceptable minimum appreciation rate for looking at owner housing relative to renting hasrisen by 4 percent? Why or why not? (Hint: think about our analysis of the buy-rent decision).10. You are evaluating a CMBS. Beyond the standard metrics (i.e., LTV, DCI, etc.), name twothings to consider in evaluating the security.
13 Using the demand and supply curves for bonds, explain the effect of the following on the interest rates. a. A business cycle contraction b. Low inflationary expectation
Due date: Friday November 20, 2015Too Big to FailAmerican International Group, INC (AIG) caseIntroductionAIG is the story of a company, and its network of financial partners, who tookunprecedented risk and fell because of it. To prevent global economic disaster, the U.S.government came to its rescue. This has resulted in the biggest taxpayer bailout of a privatecompany in American history.BackgroundAmerican International Group, Inc. â€“ also known as AIG â€“ is an Americanmultinational insurance corporation with more than 88 million customers in 130 countries. AIGcompanies employ over 64,000 people in 90 countries. The company operates through three corebusinesses: AIG Property Casualty, AIG Life and Retirement and United Guaranty Corporation(UGC). AIG Property Casualty provides insurance products for commercial, institutional andindividual customers. AIG Life and Retirement provides life insurance and retirement services inthe United States. And UGC focus…
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.
4. Using the same demand curve and supply curve information from question 4, for one-year GASCOHER ‘bonds with a face value of $1.000 B BY: Price = Quantity + 400 Suppose that, a3 a result of monetary policy actions, the Federal Reserve reduces the bonds by 40. Assume that bond demand is constant a How does the Federal Reserve policy affect the bond supply equation? b, Calculate the effect of the Federal Reserve's action on the equilibrium quantity, price and interest rate in this market
The expected real interest rate on bond will be less than the realized real interest rate if a the actual and expected inflation rates are equal. b the actual and expected inflation rates are equal to zero. c the actual inflation rate is less than the expected inflation rate. d the actual inflation rate is larger than the expected inflation rate.
Question # One: After we study the Bonds Market, study the table below and fill in the blanks in it The Change Effect on The The The Supply or on Direction Effecteffect Demand? of shift on of i in the PB Curve An increase in the MPS An increase of liquidity of bonds Government budget is in deficit Expected returns on other assets increases An increase in the risk of bonds
35. The liquidity premium theory of the term structure is different from the expectations theoryof the term structure because it includesa.a risk premiumb.default riskC .portfolio of AAA and BBB bond yieldsd.differences between the yields on AAA bonds and BBB
3. think through a couple of other such shifters using the bond supply/demand picture. a. Suppose that households learn that they are entering a recession. This means that they need to prepare for a higher risk of being unemployed for a long period of time. How will this possibility affect their demand for government bonds? Explain your answer. What will happen to the equilibrium interest rate in the government bond market? b. Suppose that banks are told that they must be backed by a lot more equity capital, unless their assets consist of government bonds. How will this affect their demand for government bonds? What will happen to the equilibrium interest rate in the government bond market?
Answer needed urgently Q.Explain how business cycle expansion changes the Bond market conditions? Illustrate your answer with an appropriately labelled diagram.

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