Situation on the nominal interest rate in the economy

Assignment Help Financial Management
Reference no: EM131499601

Suppose that discount brokers make bonds more liquid, in the sense that it becomes quick and inexpensive to sell bonds.

A. Using an appropriate diagram, illustrate and explain the effects of this situation on the nominal interest rate in the economy.

B. Suppose that the Fed becomes concerned regarding the nominal interest rate change that occurs in part A of this situation. What should the Fed do if it does not want any change in the nominal interest rate in the economy? Explain.

Reference no: EM131499601

Questions Cloud

What is the value today of social security promise : what Is the value today of Social Security's promise?
The value of the british pound in canadian dollars is : Assume the Canadian dollar is equal to $.80 and the British Pound is equal to $1.50. The value of the British Pound in Canadian dollars is?
Thinking about buying a savings bond : You are thinking about buying a savings bond. the bond costs $41 today and will mature in 10 years with value of $82. What annual interest rate will bond earn.
What is the payback period for project : What is the payback period for this project?
Situation on the nominal interest rate in the economy : Illustrate and explain the effects of this situation on the nominal interest rate in the economy.
Demand for us exports tends to increase when : The demand for U.S. exports tends to increase when:
What is analyst best estimate of the company share price : What is the analyst’s best estimate of the company’s share price if the relevant risk-adjusted interest rate falls from 6 percent to 5 percent.
Should convertible preferred stock include call provision : Contrell Company is planning to finance expansion with convertible preferred stock. Should convertible preferred stock include call provision? Why or why not
Formulate strategy using swaps to hedge this risk : Calculate – where possible – the amount of interest that you will pay to UBS Bank. Formulate a strategy using swaps to hedge this risk.

Reviews

Write a Review

Financial Management Questions & Answers

  Shareholders indifferent between being unlevered and levered

Santos Unlimited (SU) was originally unlevered with 4600 shares outstanding. However, after a major financial restructure, SU now has $38000 of debt, with an annual interest expense of 10 percent. Help understand the situation better by computing the..

  Make to pay off the loan

If you borrow $25,000 today and your annual payments are $1683.95, how many payments must you make to pay off the loan if you are being charged 6% APR compounded annually?

  What is the value of the option to wait

Hickock Mining is evaluating when to open a gold mine. The mine has 39,000 ounces of gold left that can be mined, and mining operations will produce 6,500 ounces per year. The required return on the gold mine is 10 percent, and it will cost $34.5 mil..

  Use interest rate swap to create net fixed rate on the debt

Stagecoaches, Inc. has $100,000,000 in 5-year floating rate debt with an interest rate of LIBOR + 3.0% and quarterly payments. Describe how the firm can use an interest rate swap to create a net fixed rate on the debt. Given the current fixed-rate on..

  Material ordering costs-labor costs and credit sales

Write a memo to your supervisor explaining the cash conversion cycle at your company, a manufacturer of plastic toys. Be sure to address the following: Material ordering costs, Labor costs, Credit sales (accounts receivables)

  What is the balance in your account

You sell one December futures contract when the price is 1010 per unit. Each contract is on 100 units. The initial margin is $2000/contract and the maintenance marginn is $1500/contract. The next day the futures price rises to 1012. What is the balan..

  True for a limited partnership

Which of the following is NOT true for a limited partnership? a. Limited partners may sell their interest in the company b. Limited partners can only manage the business c. One general partner must exist who has unlimited liability d. Only the name o..

  Regarding full or partial rollover of assets

Regarding a full or partial rollover of assets from one retirement plan to another retirement plan:

  What is the equivalent annual cost-required rate of return

Champion Bakers uses specialized ovens to bake its bread. One oven costs $840,000 and lasts about 3 years before it needs to be replaced. The annual operating cost per oven is $11,000. What is the equivalent annual cost of an oven if the required rat..

  Government securities and corporate bonds

Compare and contrast the differences between US Government securities and corporate bonds.

  Typical activity for an ethics officer

Which of the following in NOT a typical activity for an ethics officer?

  Calculate the variances and the standard deviations

The rate of return on Cherry Jalopies, Inc., stock over the last five years was 19 percent, 11 percent, -7 percent, 6 percent, and 9 percent. Over the same period, the return on Straw Construction Company’s stock was 16 percent, 20 percent, -3 percen..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd