Ch 3 4303

Chapter 3 Maria Voitsekhovitch 2. Although investors always drive the option of purchasing danger free treasury securities, they may elect approximately new(prenominal) securities if the throw compensates them for jeopardy. Thus, if all another(prenominal) characteristics besides credit unwrap be equal, securities with a full(prenominal)er degree of risk allow be possessed of to continue high yield to be purchased. 3. Investors choose securities that are liquid, meaning that they could easily be converted to delicate cash without a loss in value. Thus, if all other characteristics are equal, securities with less liquidity will feel to go a higher yield to be preferred. Securities with a hornswoggle landmark maturity or an active secondary grocery store have greater liquidity. 4. Investors in high impose brackets welfare to the highest degree from assess exempt securities, because revenueable securities will have to offer a higher in advance tax yi eld to investors than tax exempt securities to be preferred. The extra compensation mandatory on such taxable securities depends on the tax grade 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 caseful 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. jibe to the sodding(a) expectations theory, the destination structure of interest rates is de edgeined merely by e! xpectations of future interest rates. There is a elfish demand for short term capital and downward ram on the yield of short term cash. Also there is an increase in demand for long term silver by borrowers which places upward pressure on long term coin. 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 flat yield curve to pivot upwards (counterclockwise) and excogitate upward sloping....If you want to get a full essay, hallow it on our website: OrderCustomPaper.com

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