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problem1:  The Federal Reserve sells 50 billion dollar of short-term U.S. Treasury securities to public, other things held constant, determine the most likely effect on short-term securities prices and interest rates?

[A] Prices and interest rates will both decline.

[B] Prices will decline and interest rates will rise.

[C] Prices and interest rates will both rise.

[D] Prices will rise and interest rates will decline.

[E] There is no reason to expect a change in either price or interest rates.

problem2:   Your uncle would like to limit both interest rate [the risk that rising rates will cause the value of his bonds to decline] & his default risk, but he would still like to invest in corporate bonds. He is considering the following bonds. Which of these bonds would best meet his criteria?

[A] BBB bonds with 10 years maturity.

[B] AAA bonds with 5 years maturity.

[C] AAA bonds with 10 years to maturity.

[D] BBB perpetual bonds.

[E] BBB bonds with 5 years maturity.

Basic Finance, Finance

  • Category:- Basic Finance
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