Question 1

In the following table,fill in the missing values for a $15,000 one-year bond:

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Question 2

Between 1982 and 2008,the total size of the U.S.mortgage market increased by approximately:

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Between 1982 and 2008, the size of the U.S. mortgage market increased from around $1 trillion to over $14 trillion, which is a 1,300% increase. However, the answer options only go up to 350%, so the closest answer is D, which is 350%.

Question 3

Which of the following supply and demand models for home mortgages represents what would happen if the U.S.government began monitoring lending practices of financial institutions,making it more difficult to issue mortgages?

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Question 4

Which of the following supply and demand models of Treasury securities represents what would happen if the United States issued more Treasury securities to pay for spending programs?

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Question 5

What would you expect to happen to the supply and demand model for home mortgages if the down payment required to get a mortgage decreased from 20% to 10%?

Accepted Answer

Decreasing the down payment required to get a mortgage from 20% to 10% makes it easier for people to get a mortgage, which can lead to an increase in demand for home mortgages. This is because a lower down payment requirement means more people can afford to buy a home, which increases the overall demand for mortgages. Therefore, the demand for home mortgages would increase.

Question 6

Define and explain the differences between the following terms:
a. indirect and direct finance.
b. a bond and a stock.
c. the maturity date of a bond and the face value of a bond.
d. the Dow Jones Industrial Average and the S&P 500.

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Question 7

Answer the following questions regarding stocks.
a. Why would a firm sell stocks instead of bonds?
b. What are some benefits, from the buyer's perspective, of stock ownership?

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a. Why...

Question 8

Your friend Kimberly is starting a new bakery that specializes in gluten-free items in Chicago,Illinois.Because her business is new and risky,she is unable to obtain a loan from the local bank.You agree to pay a price of $8,000 for a one-year bond from Kimberly,and you will receive $9,000 in return on June 21,2014.
a. What is the face value of this bond?
b. What is the price of the bond?
c. What is the interest rate of the bond?
d. What is the importance of June 21, 2014?

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Question 9

The creation of a new security by combining otherwise separate loan agreements is called:

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Question 10

Your friend Earl is starting a dog-grooming service called "Petsgroom." Because his business is new and risky,he is unable to obtain a loan from the local bank.You agree to pay a price of $7,250 for a one-year bond from Earl.
a. Calculate the face value of the bond with an interest rate of 3.4%.
b. Calculate the face value of the bond with an interest rate of 6.7%.
c. Comment on the relationship between the purchase price of the bond and the interest rate.

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Question 11

Define financial intermediaries and explain the importance of financial intermediaries in the economy.

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Question 12

Using a supply and demand model for bonds,answer the following questions regarding bonds issued by Apple.
a. Show the effects of an increase in the default risk of Apple.
b. Show the effects if Apple's bond rating goes from AA to AAA.

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Question 13

Securitization is:

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Securitization refers to the process of creating a new financial security, such as a bond, by pooling together and selling otherwise separate loan agreements, such as mortgages or car loans. This allows investors to invest in a diversified pool of loans, which can reduce risk and increase liquidity in the financial markets.

Question 14

When firms seek funding to pay for resources for production they go to the loanable funds market.There are two different paths through the loanable funds market.List these two routes and describe the difference between them.

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Question 15

What would you expect to happen to the supply and demand model for Treasury securities if a new law makes it easier for foreign investment in the United States?

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If a new law makes it easier for foreign investment in the United States, it will increase the demand for Treasury securities, as there will be more foreign investors willing to purchase them. This will shift the demand curve to the right, causing the price of Treasury securities to increase. The supply curve is not affected by this new law, as it only affects demand.

Question 16

Explain the importance of secondary markets for securities,and show how the existence of secondary markets impacts the supply and demand for securities.

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Question 17

A home mortgage loan is:

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A home mortgage loan is a type of loan that is used by individuals to purchase a home. The loan is secured by the property being purchased and the borrower repays the loan over a set period of time with interest. This is the most common way people finance the purchase of a home.

Question 18

Give one argument for and one argument against the Troubled Asset Relief Program (TARP).

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Question 19

Which of the following best describes a mortgage-backed security?

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A mortgage-backed security is a bundle of mortgages that are packaged together and sold to investors as a single investment. The mortgages are pooled together and the cash flows from the payments made by the borrowers are used to pay the investors who hold the security. This type of security is then available for resale in secondary markets.

Question 20

In 2011,approximately how much of U.S.federal debt was held by foreigners?

Accepted Answer

In 2011, approximately one-third (32%) of the U.S. federal debt was held by foreigners. This includes foreign governments, central banks, and individuals or companies outside of the United States who have invested in U.S. Treasury securities. While this may seem like a high percentage, it is important to note that the majority of U.S. federal debt is still held by American citizens and institutions.

Quiz 10: Financial Markets and Securities