You have the option to invest in either country A or country B but not both. You carry out some research and conclude that the two countries are similar in every way except that the returns on assets of different classes tend to move together much more in country A– that is, they are more highly correlated in country A than in country B. Which country would choose to invest in and why?
Answer to relevant QuestionsPlot the percentage change from a year earlier of the value of the S&P 500 stock index (FRED code: SP500). Visually, has the risk of the S&P 500 index changed over time?Your financial adviser recommends buying a 10-year bond with a face value of $1,000 and an annual coupon of $80. The current interest rate is 7 percent. What might you expect to pay for the bond (aside from brokerage fees)?As you read the business news, you come across an advertisement for a bond mutual fund – a fund that pools the investments from a large number of people and then purchases bonds, giving the individuals “shares” in the ...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. (LO3)Suppose that a major foreign government defaults on its debt. What, if anything, will happen to the position and slope of the U.S. yield curve?
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