Saturday, October 26, 2013

In response to the following changes in market conditions of bond? and Bail Bonds

In response to the following changes in market conditions of bond?



In each case, state what happens to the bond price and what happens to the interest rate (up, down, or unchanged and which curves shift to which direction)

A) Corporate bonds become less risky relative to other assets.
b) The U.S. economy experiences what Mishkin would describe as a business cycle expansion.


Bond best answer:

Answer by ProfessorOddlot
Rather than give you the answers to your homework, I'll try to get you thinking about the concepts so YOU can answer them...

A) if an asset becomes viewed as less risky, what do you suppose might happen to the interest rate a buyer would be willing to accept? Hint: if a company (issuers of corporate bonds) is viewed as "risky" by the investment community, then they probably have to pay a higher interest rate on their bonds than companies that are considered less risky.

B) when the economy is in expansion mode, the central bank (the Federal Reserve) starts to become concerned about inflation. Conversely, when the economy is weak, the Fed oftent tries to spur economic activity with lower interest rates. So which direction do you think the Fed will push interest rates when the business cycle is in an expansion?

Finally, the price of a bond and prevailing interest rates move in opposite directions. When rates are declining, the market price of existing bonds rise; when rates are rising, the market price of existing bonds decline.


Bond

Bail Bonds
Bond

Image by Steve Snodgrass
Lilly's Bonding Service
L&L Bail Bonds
Mary's Bail Bonds



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