Log in
Finance
1
answer
0
watching
84
views

1. Suppose the default risk of corporate bonds decreases.

What would be the major effect?

Increase in demand for loanable funds (increase in supply of bonds)

Decrease in demand for loanable funds (decrease in supply of bonds)

Increase in supply of loanable funds (increase in demand for bonds)

Decrease in supply of loanable funds (decrease in demand for bonds)

Why?

b. Graphically illustrate the effect on the equilibrium interest rate and quantity of loanable funds.

2. Suppose the Federal Reserve makes a discount loan to a bank.

What would be the major effect in the market for federal funds?

Increase in demand for federal funds

Decrease in demand for federal funds

Increase in supply of federal funds

Decrease in supply of federal funds

Why?

b.Graphically illustrate the effect on the equilibrium interest rate and quantity of federal funds.

Watch
1
answer
0
watching
84
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Irving Heathcote
Irving HeathcoteLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

1. Recently the Fed has been engaging in a contraction policy by selling Treasurysecurities to the non-bank public (suppose hypothetically this entails a sale of

securities of $800 billion).

a. Show the respective changes for balance sheet accounts for this openmarket operation for the non-bank public, the banking system, and theFederal Reserve System.

b. Explain in your own words based on the loanable funds theory, the effect
of the Fed’s actions on the supply of loanable funds, and the net effect onthe economy’s equilibrium real interest rate.

The demand curve and supply curve for​ one-year discount bonds with a face value of

​$1,000 are represented by the following​ equations:

Bd​:

Price

=

- 0.8−0.8Quantity + 1,120

Bs​:

Price

=

Quantity + 680

Suppose​ that, as a result of monetary policy​ actions, the Federal Reserve sells

90 bonds that it holds. Assume that bond demand and money demand are held constant. Which of the following statements is​ true?

A. If the Fed increases the supply of bonds in the market by 90​, at any given​ price, the bond supply equation will become Price= Quantity + 590.

Your answer is correct.

Calculate the effect on the equilibrium interest rate in this​ market, as a result of the Federal Reserve action.

The expected interest rate on a​ one-year discount bond will

increase to ( ___% ).

​(Round your intermediate calculations to the nearest whole number. Round your final answer to two decimal​ places.)

  1. Which of the following is an advantage of convertible bonds?

    Investors can convert the bonds into higher coupon ratebonds.

    Investors can choose to hold the company's bonds or convert thebonds into its stock.

    Investors are paid a penalty on the conversion of the bonds.

    Investors are redeemed for the difference between the face valueand the market price on redemption of the bonds.

    Investors can claim interest for the remaining life of the bondson the bonds' early conversion.

5 points

QUESTION 2

  1. If the Federal Reserve loosens money supply then:

    inflation will decrease.

    interest rates will decrease.

    sale of Treasury securities will increase.

    credit supply will decrease.

    economic activity will decrease.

5 points

QUESTION 3

  1. A bond purchased for $950 was sold for $980 after one year. Theinterest received during the year is $25. The bond's yield is:

    2.23%

    5.79%

    8.12%

    5.25%

    9.36%

5 points

QUESTION 4

  1. Investors with a _____ will demand a higher rate of return.

    higher time preference for consumption

    lower exposure to economic risks

    lower access to production opportunities

    higher financial creditworthiness

    lower default premium

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in