Reference no: EM132517532

Assignment - Require simple answers and quantitative problems solutions.

Textbook - Mishkin, F. S., Eakins, S. (20170109). Financial Markets and Institutions, 9th Edition [VitalSource Bookshelf version]. Retrieved from vbk://9780134520421

Section I: Answer the following questions

1) M&E, Chapter 4, page 93: Question 9 - How might a sudden increase in people's expectations of future real estate prices affect interest rates?

2) M&E, Chapter 15, page 388: Question 7 - The president of the United States announces that he will reduce inflation with a new anti-inflation program. If the public believes him, predict what will happen to the exchange rate for the U.S. dollar.

3) M&E, Chapter 16, page 417: Question 9 - "If a country wants to keep its exchange rate from changing, it must give up some control over its monetary policy." Is this statement true, false, or uncertain? Explain your answer.

4) M&E, Chapter 8, page 197: Question 18 - Why would haircuts on collateral increase sharply during a financial crisis? How would this lead to fire sales on assets?

5) M&E, Chapter 25, page 680: Question 9 - What special problem do off-balance sheet activities present to bank regulators, and what they have done about it?

6) M&E, Chapter 21, page 571: Question 5 - How do insurance companies protect themselves against losses due to adverse selection and moral hazard?

Section II: Solve the following problems

1) M&E, Chapter 5, page 123: Quantitative Problem 8 - The one-year interest rate over the next 10 years will be 3%, 4.5%, 6%, 7.5%, 9%, 10.5%, 13%, 14.5%, 16%, and 17.5%. Assume that investors prefer holding short-term bonds so that a liquidity premium of 10 basis points is required for each year of a bond's maturity. What will be the interest rates on a three-year bond, a six-year bond, and a nine-year bond?

2) M&E, Chapter 12, page 318: Quantitative Problem 10 - Consider two $10,000 face-value corporate bonds. One is currently selling for $9,980 and matures in 15 years. The other bond sells for $9,350 and matures in 3 years. Calculate the current yield for both bonds if both have a coupon rate equal to 5%. Which current yield is a better approximation of the yield to maturity? (Assume a yearly coupon payment.)

3) M&E, Chapter 13, page 341: Quantitative Problem 6 - LaserAce is selling at $22.00 per share. The most recent annual dividend paid was $0.80. Using the Gordon growth model, if the market requires a return of 11%, what is the expected dividend growth rate for LaserAce?

4) M&E, Chapter 14, page 363: Quantitative Problem 9 - Consider a 30-year fixed-rate mortgage for $500,000 at a nominal rate of 6%. What is the difference in required payments between a monthly payment and a bimonthly payment (payments made twice a month)?

5) M&E, Chapter 23, page 620: Quantitative Problem 4 - Calculate the new interest rate if a bank realizes that the value of a mortgage increases from $450,000 to $471,428.57, if the duration of the mortgage is 10 years and the interest rate used to price this asset was originally 5%.

6) M&E, Chapter 24, page 655: Quantitative Problem 6 - Q.5 Suppose that the pension you are managing is expecting an inflow of funds of $100 million next year and you want to make sure that you will earn the current interest rate of 8% when you invest the incoming funds in long-term bonds. How would you use the futures market to do this? (Mishkin, 20170109, p. 609)

How would you use the options market to accomplish the same thing as in problem 5? What are the advantages and disadvantages of using an options contract rather than a futures contract?

Attachment:- Assignment Questions File.rar