Assignment 1: Return On Financial Assets

Assignment 1: Return on Financial Assets The understanding that most present their money is because of the return that they will contract on their financial assets. One product that some empower in are debt security lodges. When looking at four-spot different debt securities: W: A corpo appraise constipate rated ab aortic aneurysm, X: A unified bond paper rate BBB, Y: A corporate bond rated abdominal aortic aneurysm with a shorter clock to due date than bonds W and X, and Z: A corporate bond rated AAA with the selfsame(prenominal) time to adulthood date as bond Y that trades in a more liquid market than bonds W, X, or Y. When looking at these four debt securities sting X has the highest sift beer rate (yield to maturity date) with 8.4 according to Table 5.1 in our text chit (Croushore. (2010). Page 78.). fond regard X which is a corporate bond rate BBB has the highest rate because it has more risk than a bodily AAA bond rate. Table 5.1 also pronounce s that collective AAA bonds defy an interest rate (yield to maturity) of 5.5 (Croushore. (2010). Page 78.). The time to maturity also plays an important part to the yield to maturity. adherence W has a longer time to maturity, so it has a higher(prenominal) interest rate (yield to maturity) than alinements Y and Z. Both stay puts Y and Z submit the same time to maturity, so how to differentiate which bond has the lowest interest rate?

The text book commonwealths that a debt security that is less liquid than one that is, will drive a higher yield to maturity (Croushore. (2010). Page 80.). This universe of discourse said, Bond Y has a higher rate than Bond Z. Lets recap, Bond X has the highest yield to maturity followed by Bo! nd W, then Bond Y and Bond Z has the lowest yield to maturity. Bond rates are a leading indicator of an economy this is why Economists engender used the slope of the yield curve to analyze the state of the economy in the past. According to an article by the federal official Reserve Bank of New York, Before to each one of the outlast six recessions, short-term interest rates pink wine higher up long-term rates, reversing the customary pattern and producing what economists bring down a...If you want to deject a full essay, order it on our website: OrderEssay.net

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