كتابه بحث خط اليد بالانجليزي
كتابه بحث خط اليد بالانجليزي
What empirical facts must a theory of the term structure explain? Discuss the three main theories of the term structure and how well each explains these facts.
Answer:
The three facts are that rates of different maturities move together, that yield curves slope
up when short rates are low and down when short rates are high, and that yield curves
generally, slope up.
The expectations theory is based on the assumption that bonds of different maturities are
perfect substitutes, making long rates the average of expected short rates over the life of
the long bond. This theory explains the first two facts, but not the third, since on average
the yield curve is flat according to this theory.
The segmented markets theory rejects the substitutability of bonds of different maturities.
Markets for different bonds are segmented. Since investors prefer short bonds, this theory
explains why the yield curve slopes up, but not the first two facts.
The liquidity premium theory combines the expectations theory with the preference for
short-term bonds. This theory explains all three facts.
5. Use either bond supply and demand analysis or liquidity preference framework to predict how each of the following events would affect the interest rate. Explain.
(a)An increase in the riskiness of bonds.
An increase in the riskiness of bonds reduces the demand for bonds. As a result, the bond prices go down and the interest rate go up. Alternatively, according to the liquidity preference framework, an increase in the riskiness of bonds raises the demand for money, resulting in an increase in the interest rate.
(b) A sudden increase in the volatility of gold prices.
Higher risk of gold prices increases the demand for bonds, raises the bond prices, and reduces the interest rate.
(c)A large federal deficit.
A large federal deficit often implies higher than usual bond supply. As a result, bond price will go down and interest rates will go up.
(d) Brokerage commissions on stocks fall.
The fall in stock brokerage commission makes stocks more attractive relative to bonds. As a result, the demand for bonds declines, the bond price declines, and interest rates increase.
How do restrictive covenants reduce moral hazard in debt contracts?
Answer:
1. Restrictive covenants keep borrowers from taking excessive risks.
2. Restrictive covenants can encourage desirable behavior, such as buying insurance to repay the loan in case of death of the borrower, and maintaining high net worth.
3. Covenants encourage the borrower to keep collateral valuable, including purchasing insurance to protect assets against risk of loss.
4. Covenants require borrowers to provide information about activities, including accounting and income reports. This reduces moral hazard.
Are stocks an important source of funds for nonfinancial corporations? Why or why not?
Answer:
Stocks are not an important source of funds for financing businesses. This is primarily due to the principal-agent problem, a type of moral hazard. Agents (managers) may not have the same incentive as principals (owners). Agents may sacrifice profits to provide themselves with various personal benefits. Monitoring managers’ (agents’) behavior is costly. This is costly state verification. Thus, moral hazard is the reason stocks are not an important source of funds for businesses.
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