Suppose earlier this morning, your broker recommended you buy Lee County, NC school construction bonds for your Lee County debt, personal investment portfolio. Ceteris paribus, it follows that she thinks the market is currently and she expects Lee County bond prices to in the future. Select one: a. over-pricing; increase b. over-pricing; decrease C. under-pricing; increase d. under-pricing; decrease
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- 4. Tompton has estimated that near the point of equilibrium, the demand curve and sunnly oum for bonds can be estimated using the following equations: Bd: Price = -2 Quantity + 850 BS: Price = Quantity + 600 a. What is the expected equilibrium price and quantity of bonds in this market? b. Given your answer to part (a), which is the expected interest rate in this marketoPredict what would happen to the risk premiums ofmunicipal bonds if the federal government guaranteestoday that it will pay creditors if municipal governments default on their payments. Do you think that itwill then make sense for municipal bonds to be exemptfrom income taxes?Suppose that in a given bond market, there is currentlyno information that can help potential bond buyers todistinguish between bonds. Which bond issuers havean incentive to disclose information about their companies? Explain why
- As and example of a possible investment restriction, an insurer mah only be allowed to invest up to 20 percent of its assets in common stock. What penalty is imposed upon the insurer that invests 30 percent of available assets in common stock?A. The additional 10 percent must be disposed of by year endB. The state regulators would impose a 10 percent fine on the insurer.C. The additional 10 percent would be a nonadmitted asset.D. The additional 10 percent would only be listed at cost.Bond rating agencies like Moody's and Fitch specialize in: OA assessing the credit and default risk of issuers. O B. assessing the credit, default and liquidity risk of issuers. OC. assessing the liquidity risk of issuers. O D. guaranteeing a specific interest rate payment by bond issuers to investors.Suppose you are in charge of the financial departmentof your company and you have to decide whether toborrow short or long term. Checking the news, yourealize that the government is about to engage in amajor infrastructure plan in the near future. Predictwhat will happen to interest rates. Will you advise borrowing short or long term?
- Answer these three questions about early-stage corporate finance: Why do very small companies tend to raise money from private investors instead of through an IPO? Why do small, young companies often prefer an IPO to borrowing from a bank or issuing bonds? Who has better information about whether a small firm is likely to earn profits, a venture capitalist or a potential bondholder, and why?Carly wants to buy and operate an ice-cream truckbut doesn’t have the financial resources to start thebusiness. She borrows $20,000 from her friendFreddie, to whom she promises an interest rateof 7 percent, and gets another $30,000 from herfriend Sam, to whom she promises a third of herprofits. What best describes this situation?a. Freddie is a stockholder, and Carly is abondholder.b. Freddie is a stockholder, and Sam is abondholder.c. Sam is a stockholder, and Carly is a bondholder.d. Sam is a stockholder, and Freddie is abondholder.Moving to another question will save this response. Question 27 "Crowding out happens when O a.government budget deficits shift the savings supply curves upward, or to the left, leading to higher interest rates and crowding out private investment. Ob.government budget cuts lead to more demand for investment funds. Oc big business crowds out smaller competitors by offering volume discounts O d.government budget cuts lead to budget surpluses, shifting the savings supply curve downward, or to the right, leading to higher interest rates and crowding out the private sector. Moving to another question will save this response. tab caps lock fn control 1 Q O A P 2 Z T option 100 W S # 3 X 80 E H command D $ 4 a C R % 5 F 4 T V 6 G 7 -7 Y B 34 H U 8 N J 1 9 M K O A O < . 26 P command 1 ? option ) -
- 4-4The federal government (1) encouraged the development of the savings and loanindustry, (2) virtually forced the S&L industry to make long-term, fixed-interest-rate mortgages, and (3) forced S&Ls to obtain most of their capital asdeposits that are withdrawable on demand. a.Would the S&Ls be better off if rates are expected to increase or to decreasein the future? b.Would the S&L industry be better off if the individual institutions sold theirmortgages to federal agencies and then collected servicing fees or if theinstitutions held the mortgages that they originated?The conflict of preferences occurs because O a. Customers of firms have different needs to those assumed by suppliers O b. Primary investors want low-cost liquidity and certainty, and the ultimate borrowers want long term risk-bearing capital O .Primary investors want a completely risk-free investment with high returns and borrowing firms offer only high risk/low return as their securities O d. Preference shares do not carry a sufficiently high dividend, given their riskEconomics What is the probability of default if the risk premium demanded by bond holders is 2% and the return on the riskless bond is 5% (round to the nearest decimal point) Savet a. 1.9% b. All of the answers here are incorrect Oc 1.3% Od. 21% Oe2.8%