Financial and Economic Analysis
In economic terms, there are no input restrictions; however, the output MUST be yours. 1 . 1 5 points) The accommodative policies of the Federal Reserve System, the European Central Bank, and the Bank of Japan involve the purchase of fixed-income securities to infuse liquidity into their respective economies for the purpose of stimulating economic activity. Using the “money line-spending line” diagram and aggregate demand and supply curves, depict a situation in which monetary accommodation will not produce the intended outcome.
Apart from the graphical analysis, what is a reason to doubt that the policies will work as intended? 2. (5 points) Returning to the first problem set, which of the five companies are most keel to be impacted by the increase in global liquidity? Why? Do their betas tell you anything? 3. (10 points) A popular financial newsletter called the Aweigh Forecast states the following: “In a nutshell, easier money and lower interest rates are bullish; tighter money and higher interest rates are bearish” (Martin E.
Swig’s italics, not mine). Is this really true? Let us test this assertion with the following model on stock prices: spot where et boo + + bomb+et annual stock price index the S 500; annual
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Does the evidence support the quote? Why or why not? 4. (5 points) Four U. S. Firms currently have debt rated as “Aaa,” two of which are headquartered in New Jersey, Automatic Data Processing and Johnson & Johnson. Based on the current term structure of interest and the current stance of monetary policy, what would be your strategy at this time as a member of the treasury apartment of either corporation? Why? 5. (10 points) After considerable negotiation with its owners, you have purchased a home for $545,700.
After a 20 percent down payment, you finance the remainder under a twenty-year mortgage at the annual percentage rate (PAR) of 3. 32%) a. (4 points) What are your monthly payments? Show ALL your work, including your use of the formula. B. (6 points) Over time, what is the total cost of the home? After the third monthly payment, what is the total amount that you owe each in interest and principal? Show ALL your work, including your use of the formulas. (Note: In the intermediate steps f your calculations, take the decimal point to five places.
At the final calculation, round off to two places. ) 6. (5 points) Name the advantages a zero-coupon bond has over a coupon bond? What are the disadvantages? 7. (5 points) Demonstrate that you understand the difference among coupon yield, current yield, and yield to maturity with the following illustration for Morgan Stanley debt, par value of $1000: current price of $920, coupon rate of 4. 2%, issue date of September