Week 5 Homework

Directions: Answer five of the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link above. This homework assignment is worth 20 points.

1. Explain how the credit crisis affected the default rates of junk bonds and the risk premiums offered on newly issued junk bonds.

2. Explain the conditions that led to the debt crisis in Greece.

3. Explain the impact of a decline in interest rates on:

a.   An investor’s required rate of return.

b.   The present value of existing bonds.

c.   The prices of existing bonds.

4. Since fixed-rate mortgages and bonds have similar payment flows, how is a financial institution with a large portfolio of fixed-rate mortgages affected by rising interest rates? Explain.

5. Is the price of a long-term bond more or less sensitive to a change in interest rates than to the price of a short-term security? Why?

6. Explain the concept of bond price elasticity. Would bond price elasticity suggest a higher price sensitivity for zero-coupon bonds or high-coupon bonds that are offering the same yield to maturity? Why? What does this suggest about the market value volatility of mutual funds containing zero-coupon Treasury bonds versus high-coupon Treasury bonds?

7. When tensions rise or war erupts in the Middle East, bond prices in many countries tend to decline. What is the link between problems in the Middle East and bond prices? Would you expect bond prices to decline more in Japan or in the United Kingdom as a result of the crisis? (The answer is tied to how interest rates may change in those countries.) Explain.

8. Mortgage lenders with fixed-rate mortgages should benefit when interest rates decline, yet research has shown that this favorable impact is dampened. By what?

9. Explain why the stock price of a firm may rise when the firm announces that it is repurchasing its shares.

10. Over the last year, Calzone Corporation paid a quarterly dividend of $0.10 in each of the four quarters. The current stock price of Calzone Corporation is $39.78. What is the dividend yield for Calzone stock?

Note: please do not include the questions in the body of your homework since the SafeAssign will show a high percentage matching.

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Status NEW Posted 05 Oct 2020 06:10 AM My Price 10.00

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file 1601880284-Week 5 Homework.docx preview (283 words )

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