Textbook Problems

Week 3 Textbook Problems

FIN/366

10/07/2019

Ch. 6, p.158, # 1

To generate funding the Treasury issues short-term securities known as T-bills. The primary T-bill market is in auctions where investors can submit bids.

Ch. 6, p.158, # 4

Financial institutions such as finance companies and bank holding companies are the main issuers or commercial paper. Companies that issue commercial paper, often create a department that can directly place commercial paper. Having an inhouse department can lower costs by avoiding transactions costs for companies that borrow money in this way frequently.

Ch. 6, p.158, # 8

I would expect repurchase agreements to have a slightly lower annualized yield than commercial paper because they are backed by treasury yields. And treasury yields are slightly lower than commercial paper.

Ch. 6, p.158, # 9

Banker’s acceptances protect the importer by allowing them to receive goods without paying for them immediately and avoid risk of never receiving said goods. It helps the exporters generate financing to complete transfer and protect them from the risk of not being payed for their goods. Investors purchase bank acceptances to guarantee repayment from importer or exporter. Banks sell these protections to importers, exporters, and investors.

Ch. 7, p.184, #10

If bond yields in Japan rise investors are more likely to invest in those bonds meaning investment in U.S. bonds would decrease.

Ch. 7, p.184, #11

During the credit crisis junk bonds risk premiums were over 10% because junk bonds that were valued at more than $25 million defaulted. The increase in risk premiums is higher when the economy is weak because there is a chance that the issuer will not be able to generate enough funds to cover debt.

Ch. 8, p.213, #1

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