In 2010 and 2011, the government of Greece riskeddefaulting on its debt due to a severe budget crisis.Using bond market graphs, compare the effects onthe risk premium between U.S. Treasury debt andcomparable-maturity Greek debt.
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In 2010 and 2011, the government of Greece risked
defaulting on its debt due to a severe budget crisis.
Using bond market graphs, compare the effects on
the risk premium between U.S. Treasury debt and
comparable-maturity Greek debt.
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- What do you understand by the term "Risk Free Interest Rate"? How do you rationalize this concept with phenomena characterized by the Government of Barbados’ debt restructuring in 2019?1. Suppose that the marginal mortality rate for C rated debt is 2% in 2018, 8% in 2019, and 10% in 2020. a. Caleulate the cumulative mortality rate and the cumulative survival rate for 2020. b. You invested in $20 million of C rated debt at the beginning of 2018. Calculate your expected default loss for each year.Explain why you would be more or less willing to buylong-term Delta Air Lines bonds under the followingcircumstances:a. The company just released its financial statements, indicating that income decreased and liabilities increased.b. You expect a bull market in stocks (stock prices areexpected to increase).c. You have analyzed your country’s monetary policyand expect interest rates to decrease.d. Brokerage commissions on bonds fall.e. Your income and wealth increased over the last two years
- Use the model of supply and demand for bonds to determine the impact on bond prices and yields of expectations that the real estate market is going to weaken. You must draw graph and clearly indicate the change in supply or demand curveThe table below shows interest rates on 10-year bonds for a sample of American countries (Source: Bloomberg, 08/2018). What factors explain why the rate for a 10-year bond is higher in Brazil and Mexico than US and Canada? 10-Year Government Bond Yields COUNTRY United States Canada Brazil Mexico YIELD 2.88% 2.30% 11.81% 7.77% A higher default risk for Brazil and Mexico and lower expected inflation in US and Canada. A lower default risk for Brazil and Mexico and lower expected inflation in US and Canada. A higher default risk for Brazil and Mexico and higher expected inflation in US and Canada. A lower default risk for Brazil and Mexico and higher expected inflation in US and Canada.A semiannual payment bond with a $1,000 par has a 7 percent quoted coupon rate, a 7 percent promised YTM, and 10 years to maturity. What is the bond's duration? If interest rates are expected to rise by one half of a percent, by how much would you expect the price to change using the modified duration equation? How much would you expect the price to change using convexity? You need to use the bond duration and convexity calculator to answer this question.
- The remarkable thing about the events described in the article is that the yield an the 3-month T-bill was briefly negative. To see how this could haroen, consider the relationship between bond prices and bond yields. A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entities the holder to $1,000 in three months. For example, if you were to buy a 3-month T-bill on September 24, 2008, with a maturity value of $1,000 and 90 days left to maturity, the U.S. government would pay you $1.000 on December 23, 2008. In general, the price of a bond is less than its maturity value. That is, if you are going to give up a certain amount of money for the duration of the bond, you expect to be paid for this loss of liquidity and compensated for inflation that could reduce the value of the repayment at the end of the period. Therefore, a piece of paper entitling you to $1,000 on December 23 would usually be worth less than $1,000 on September 24. The yield on a bond is a…Suppose that people in France decide to permanentlyincrease their savings rate. Predict what will happento the French bond market in the future. Can Franceexpect higher or lower domestic interest rates?List and describe thefactors that affect theequilibrium interestrate in the bondmarket
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