Ch 3 4303

Chapter 3 Maria Voitsekhovitch 2. Although investors always drive the option of buying danger free treasury securities, they may elect somewhat new(prenominal) securities if the break down compensates them for jeopardy. Thus, if all other characteristics besides credit break be equal, securities with a full(prenominal)er degree of risk allow be possessed of to continue higher(prenominal) yield to be purchased. 3. Investors choose securities that be liquid, meaning that they could easily be converted to rough cash without a loss in value. Thus, if all other characteristics are equal, securities with less liquidity will use up to ply a higher yield to be preferred. Securities with a swindle landmark maturity or an active secondary merchandise have greater liquidity. 4. Investors in high impose brackets hit to the highest degree from assess exempt securities, because taxationable securities will have to offer a higher in the beginning tax yield to inve stors than tax exempt securities to be preferred. The extra compensation necessitate on such taxable securities depends on the tax pass judgment of undivided and institutional investors. Corporate bonds have higher before tax yield, they are taxable by the federal government. municipal bonds have higher tax yield for investors who are exit to high tax rates. Corporate bonds have a higher afterwards tax yield only for low tax investors.

respect bonds offer a lower yield because they are risk free. Required return on treasury bonds is lower. 5. match to the sodding(a) expectations theory, the destination struc ture of interest rates is de boundined bar! ely by expectations of future interest rates. There is a elfish demand for short term capital and downward jam on the yield of short term cash. Also on that point is an increase in demand for long term money by borrowers which places upward pressure on long term currency. Overall, the expectation of high ere interest rates changes the demand for funds and the supply of funds in different maturity markets which forces the true(a) flat yield curve to pivot upwards (counterclockwise) and refulgence upward sloping....If you want to get a full essay, place it on our website: BestEssayCheap.com

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