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[DOC File]End of Chapter 17 Questions and Answers
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Answer: Mortgage rates go up and down with expected inflation and real risk free rates based on Treasury security yields. The Federal Reserve Bank influences inflation by controlling the money supply relative to the production in the economy. The government also influences rates …
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[DOC File]Answers to Text Discussion Questions
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The leverage available can affect returns dramatically. Investors may use margin to enhance percentage returns if they expect interest rates to go down, but margin can also cause large percentage losses if they are wrong and interest rates go up. 16. Explain the benefits derived from investing in …
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[DOC File]Answers to Text Discussion Questions
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Assume the interest payments on the bond cover the interest expense on the borrowed funds. (You can use Table 12–3 in this problem to determine the new value of the bond.) b. Assume the same bond in part a is purchased with 25 percent margin, but market rates go up to 14 percent from 12 percent instead of going down to 9 percent.
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Chapter 9
When interest rates go down, bond prices go up, but the income from reinvestment goes down. The two offset one another. 4. What are two passive management strategies? Two active strategies? (easy) Answer: Passive – buy and hold and indexing. Active – forecasting interest rate …
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[DOC File]1 - Indian Institute of Banking and Finance
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7. When interest rates go up, prices of fixed interest bonds – Go up. Go down* Remain unchanged. 8. VaR is not enough to assess market risk of a portfolio. Stress testing is desirable because. It helps in calibrating VaR module. It helps as an additional risk measure. It helps in assessing risk due to abnormal movement of market parameters*
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[DOCX File]Price Risk (Interest Rate Risk) - Tulane University
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If interest rates go up by 100 basis points (to 10%), the price drops to $75.08. This is a drop in price of only $5.41 – a loss of 6.7% of the value of the bond. The bond with the lower yield of 3% suffered a larger drop in price – both in dollars and percentage of value than the bond with the higher yield of 9%.
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[DOCX File]Interest Rate Swaps:
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With a floor (call), you profit if interest rates go down. As with all options, the premium is paid up front. It is the most that the purchaser of the option can lose and the most that the writer of the option can make. As with other options, Caps and Floors can be in-the-money or out-of-the-money.
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[DOC File]Monetary Policy Worksheet - JENKINS SOCIAL STUDIES
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Commercial interest rates are rising, but the FED has not raised rates. Expansionary Monetary Policy - The banks are afraid to loan out money and as a result interest rates are going up. The FED can combat this problem by allowing the banks to borrow money from the Federal Reserve at cheaper rates or lowering the reserve requirement which will ...
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[DOCX File]Basic Portfolio Hedging - FINE 7110
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If interest rates go down, the future value of your reinvested coupon payemtns will go down, but the value of your fixed-income asset will go up. If you need to have your asset produce a specified level of money by a certain date, you must consider the trade-off between these two risks: Interest Rate Risk and Reinvestment Risk.
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When will interest rates go up