Homework_3-1 - Homework 3-1 ECON 230 Financial Markets and Institutions Prof Miles Cahill Fall 2009 Default risk Textbook questions Ch 9 7-12 Ch 10

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Homework 3-1 ECON 230 Financial Markets and Institutions Prof. Miles Cahill Fall 2009 Default risk Textbook questions Ch. 9: 7-12 Ch. 10: 11-14, 16 Additional questions 1. Read the reading Lopez (2008a). (a) Define liquidity risk as t relates to a firm. (b) What can firms do to manage liquidity risk? What is the role of regulators? 2. Read the reading Christensen (2008). (a) What is meant by the corporate bond credit spread puzzle? (b) What are likely causes of the spreads? Are the spreads fully explained? 3. (a) Consider a 3 year Timlin Inc. bond with a face value of $3,000 and a 7% coupon rate. If the yield to maturity is 8%, what is the exact market price (rounded to the nearest dollar) and Macaulay duration (rounded to 2 decimal places) of this bond? (b) Suppose the yield to maturity falls to 7%. What will the (approximate) new price of this bond be according to Macaulay duration? (c) What is the new exact rate of return? Term structure of interest rates
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This note was uploaded on 02/19/2010 for the course ECON 1313212 taught by Professor John during the Spring '09 term at The School of the Art Institute of Chicago.

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Homework_3-1 - Homework 3-1 ECON 230 Financial Markets and Institutions Prof Miles Cahill Fall 2009 Default risk Textbook questions Ch 9 7-12 Ch 10

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