Question

In: Finance

​Assume that annualized yields of short-term and long-term securities are equal. If investors suddenly believe interest...

​Assume that annualized yields of short-term and long-term securities are equal. If investors suddenly believe interest rates will increase, their actions may cause the yield curve to

Group of answer choices

a.​be unaffected.

​b.become flat.

​c.become upward sloping.

​d.become inverted.

Solutions

Expert Solution

If the annulized yields of short term and long term securities are equal, any increase in interest rates , the yield curve also becomes upward sloping due to increase and any corresponding decrease in interest rates would invert the yield curve.

Answer is ​c.become upward sloping.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

explain interest rate risk or maturity price risk faced by short term and long term investors...
explain interest rate risk or maturity price risk faced by short term and long term investors in bonds using an example
1) Investors usually knows that short term US treasury bills pay the lowest yields, then short-term...
1) Investors usually knows that short term US treasury bills pay the lowest yields, then short-term corporate paper pays more, then treasury bonds pays more, then long-term corporate bonds pay the most. Using technical terminology explain Why is that must be true ? 2) Market interest rates dropped to the lowest levels seen since the 1950s at the beginning of the great recession. Using technical terminology how this can be explained? What happened to the demand for financing and what...
Assume that consumers in country suddenly decreased their expenditure. Show graphically the short run and long...
Assume that consumers in country suddenly decreased their expenditure. Show graphically the short run and long run impact of this decrease on the macroeconomic equilibrium point using AD and AS model (assume that the country's economy initially operates at the potential level of GDP and there is no government intervention). Briefly explain. On December 13, 2017, the US Central Bank Chairman, Prof. Jeanette Yellen, announced an increase in the interest rate. Use the money market model to show graphically how...
Assume short-term securities yield 5% and it costs $20 for buying and selling securities. The variance...
Assume short-term securities yield 5% and it costs $20 for buying and selling securities. The variance of the firm's daily net cash balances is $20,000. Management keeps at least $1,000 in cash balances. What is the maximum amount the firm will let accumulate in its cash account before investing in marketable securities? How much will the firm invest?
If expectations of future short term interest rates suddenly fell, what would happen to the slope...
If expectations of future short term interest rates suddenly fell, what would happen to the slope of the yield curve according to the preferred habitat theory of the term structure of interest rates? Explain fully. with graph if it has, please!
Assume that yields on U.S. Treasury securities were as follows: TERM RATE 6 months 4.15% 1...
Assume that yields on U.S. Treasury securities were as follows: TERM RATE 6 months 4.15% 1 year 5.36 2 years 5.54 3 years 5.76 4 years 5.90 5 years 6.10 10 years 6.35 20 years 6.67 30 years 6.72 a. Select a correct yield curve based on these data. b. What type of yield curve is shown? c. What information does this graph tell you? d. Based on this yield curve, if you needed to borrow money for longer than...
Answer the following, a. If expectations of future short-term interest rates suddenly increased, what would happen...
Answer the following, a. If expectations of future short-term interest rates suddenly increased, what would happen to the slope of the yield curve? b. In the last 10 years, inflation and interest rates have become less volatile, what would you expect to see happen to the slope of the yield curve? In the space below draw, the yield curve showing how it will change.
Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and short-term creditors. What is...
Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?
Financial ratio analysis is conducted by managers, equity investors, long term creditors, and short-term creditors. What...
Financial ratio analysis is conducted by managers, equity investors, long term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?
Does compound interest have more of an impact on short term investments or long term investments?...
Does compound interest have more of an impact on short term investments or long term investments? Do you think it’s possible to have uninterrupted compound growth?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT