Explain why the prices of those junk bonds with less liquidity declined more than those with a high degree of liquidity.
Variable-Rate Bonds. Are variable-rate bonds attractive to investors who expect interest rates to decreases? Explain. Would a firm that needs to borrow funds consider issuing variable-rate bonds if it expects that interest rates will decrease? Explain.
Bond Downgrade. Explain how the downgrading of bonds for a particular corporation affects the prices of those bonds, the return to investors that currently hold these bonds, and the potential return to other investors who may invest in the bonds in the near future.
Junk Bonds. Merritt, Inc., is a large U.S. firm that issued bonds several years ago. Its bond ratings declined over time and, about a year ago, the bonds were rated in the junk bond classification. Nevertheless, investors were buying the bonds in the sec market secondary because of the attractive yield they offered. Last week, Merrito defaulted on its bonds declined abruptly on the same day. Explain why news of Merrito’s financial problems could cause the prices of junk bonds issued by other firms to decrease, even when those firms had no business relationship with Merrito. Explain why the prices of those junk bonds with less liquidity declined more than those with a high degree of liquidity.
Bond Investment Decision. Based on your forecast of interest rates, would you recommend that investors purchase bonds today? Explain.
Inflation Effects. Assume that inflation is expected to decline in the near future. How could this affect future bond prices? Would you recommend that financial institutions increase or decrease their concentration in long-term bonds based on this expectation? Explain.
Mortgage Rates and Risk. What is the general relationship between mortgage rates and long-term government security rates? Explain how mortgage lenders can be affected by interest rates movements. Also explain how they can insulate against interest rate movements.
Secondary Market. Compare the secondary market activity for mortgages to the activity for other capital market instruments (such was stocks and bonds). Provide a general explanation for the difference in the activity level.
Financing Mortgages. What types of financial institution finance residential mortgages? What type of financial institution finances the majority of commercial mortgages?
Mortgage-Backed Securities. Describe how mortgage-backed securities (MBS) are used.
Shareholders Rights. Explain the rights of common stockholders that are not available to other individuals.
Prospectus and Road Show. Explain the use of a prospectus developed before an IPO. Why does a firm do a road show before its IPO? What factors influence the offer price of stock at the time the IPO?
HYSE. Explain why stocks traded on the New York Stock Exchange generally exhibit less risk than stocks that are traded on other exchanges.
Role of IMFs. How have international mutual funds (IMFS) increased the international integration of capital markets among countries?