If, before the change in tax status, the yields on the bonds described in question 10 were below the Treasury yield of the same maturity, would you expect this spread to narrow, to disappear, or to change sign after the policy change? Explain your answer.
Answer to relevant QuestionsIf regulations restricting institutional investors to investment grade bonds were lifted, what do you think would happen to the spreads between yields on investment grade and speculative grade bonds? If inflation and interest rates become more volatile, what would you expect to see happen to the slope of the yield curve?How did the Great Depression (1930-33) and the Great Recession of 2007-2009 affect expectations of corporate default? To investigate, construct for each of those periods a separate plot of the corporate bond yield spread. ...Professor Siegel argues that investing in stocks for retirement may be less risky than investing in bonds. Would you recommend this approach to an individual in his or her early 60s?Given that many stock market indices across the world fell and rose together during the financial crisis of 2007-2009, do you think investing in global stock markets is an effective way to reduce risk? Why or why not?
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