- Consider the following four debt securities, which are identical in every characteristic except as noted:
Explain how an economist could use the slope of the yield curve to analyze the probability that a recession will occur and why the spread may matter.
One year ago, you bought a bond for $10,000. You received interest of $400 at the end of the year, as well as your $10,000 principal. If the inflation rate over the last year was five percent, calculate the real return. Show your work.
Suppose that the price of a stock is $50 at the beginning of a year and $53 at the end of the year, and it pays a dividend of $2 during the year. Calculate the stock’s current yield, capital-gains yield, and the return. Show your work for three separate calculations.
Use the capital-asset pricing model to predict the returns next year of the following stocks, if you expect the return to holding stocks to be 12 percent on average, and the interest rate on three-month T-bills will be two percent. Calculate a stock with a beta of -0.3, 0.7, and 1.6. Show your work for three separate calculations.
Use at least two (2) quality resources in this assignment.
- W: A corporate bond rated AAA
- X: A corporate bond rate BBB
- Y: A corporate bond rated AAA with a shorter time to maturity than bonds W and X
- Z: A corporate bond rated AAA with the same time to maturity as bond Y that trades in a more liquid market than bonds W, X, or Y
List the bonds in the order of its interest rate (yields to maturity) from highest to lowest. Explain your work.
- Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations, APA format and the reference page.
Learning outcomes associated with this assignment are:
Apply the present value concept to security valuation.
- Determine yields to maturity on a variety of debt instruments.
- Differentiate between nominal and real interest rates and summarize the factors affecting interest rates.
- Analyze the factors affecting stock prices, and explain the benefits of portfolio diversification.
- Use technology and information resources to research issues in money and banking.
- Write clearly and concisely about money and banking using proper writing mechanics.