Question

a) Which of the items listed below represent financial assets? (It can be more than one or none.)
⦁   Mickey Mouse brand name
⦁   Disney common stock
⦁   Disney bonds
⦁   Florida state bonds
⦁   Apartment building
⦁   Shares in a Real Estate Investment Trust (REIT) that owns apartment buildings
⦁   REIT exchange-traded fund shares
⦁   PhD degree in economics

b) Empty Seats (EMS), a global airline headquartered in Chicago, issued a bond a year ago.
⦁   What will happen to EMS bond price if a virus unexpectedly shuts down air travel across the world? Please explain your answer for full credit.
(5 points)
⦁   What will happen to EMS bond price if inflation forecasts increase from 2% to 5%? Please explain your answer for full credit.

Answer 1

a .ANS : A financial asset is a liquid asset that gets its value from a contractual right or ownership claim. Cash, stocks, bonds, mutual funds, and bank deposits are all are examples of financial assets. Unlike land, property, commodities, or other tangible physical assets, financial assets do not necessarily have inherent physical worth or even a physical form. Rather, their value reflects factors of supply and demand in the marketplace in which they trade, as well as the degree of risk they carry.

so the answer is

Disney bonds

Florida state bonds

REIT exchange-traded fund shares

b ANS :1.EMS An execution management system (EMS) designed for fixed income could help to handle the nuances and complexities of the bond markets that platforms repurposed from other markets fail to do.

• Environmental, social, and governance (ESG)-related rating actions reached 1,945 during April-August (of which 666 were downgrades). Rating actions remain heavily concentrated in sectors such as air travel, restaurants, retail, hotels, and leisure, and they are likely to remain negatively oriented as pandemic-related pressures persist.
• The pandemic is spurring European banks to take bolder steps to address their weak profitability, accelerating the imperative to become more efficient, digitize, consolidate, and integrate ESG risks and opportunities. S&P Global Ratings expects the creditworthiness of European banks to diverge further in the coming year, reflecting country-specific drivers as well as idiosyncratic factors for individual banks.
• In the U.S., states relying on in-person casino gaming activity collected nearly no related taxes from April through June. Nevada, the state most reliant on gaming activity, saw some gains in June and July as casinos began to reopen, but it faces hea

2.ans :

When interest rates are low, bond prices increase—because investors are seeking a better return. Say the Federal Reserve slashes the federal funds rate (the interest it charges banks, on which other interest rates are based) from 3% to 1%. If there's a bond trading on the market that's paying 4%, that's suddenly going to be a lot, and everyone's going to want it. So, in the time-honored tradition of supply and demand, its price will go up. And because you're paying more for it, its yield becomes less. The increased demand for the bond results in rising prices—and falling yields.

Of course, the inverse is true as well. When the risk-free rate of return (like what you find in U.S. Treasury bonds and bills) rises, money moves from financial assets to the safety of guaranteed returns. For example, if the interest rates rises from 2% to 4%, a bond yielding 5% would become less attractive. The extra yield would not be worth taking on the risk. Demand for the bond would decline, and the yield would rise until supply and demand reached a new equilibrium.