Return On Financial Assets

Return of Financial Assets Michelle Clayton ECO320 Money and Banking Professor Melvin Landry May 1, 2011 faltering 1 Consider the following four debt securities, which ar selfsame(a) in every characteristic except as famous: W: A somatic bond rated abdominal aortic aneurysm X: A corporate bond rated BBB Y: A corporate bond rated AAA with a shorter prison term to adulthood than bonds W and X Z: A corporate bond rated AAA with the same era to maturity as bond Y that trades in a to a great extent tranquil market than bonds W, X, or Y. List the bonds in the close to likely order of battle of the take rates (yield to maturity) of the bonds from highest to lowest. rationalise your work. in that respect ar several factors that affect the interest rates of securities. These factors argon essay, liquidity, taxation and time to maturity. When a confidence department involves to a greater extent risk the investors atomic number 18 compensated by higher(preno minal) rates. This is to make the security measure more showy to the investor. incarnate rated bonds that lift the AAA paygrade are chiefly a safer security with lower risk. The more liquid a security is the more attractive it is to investors. If a security is liquid that means that it carries with it slight transaction costs.

Investors are therefore enkindle in more liquid securities, however, less liquid securities carry a higher return to stimulate the investors to choose them everyplace more liquid securities. Many investors give accept a lower interest rate on securities that are not taxed. For example, the interest rate on a local regime security is generally lower becau se the security is not taxed. Corporate bond! s are taxed so the rates are generally higher. Finally, the time to maturity greatly affects interest rates. To captivate investors to invest in longstanding termed securities the interest rate is higher on securities with longer terms. Taking all of the above tuition into account, the securities would be rank from highest to lowest in this order; X, W, Y and Z. The rating of BBB puts that security as the...If you want to get a full essay, order it on our website: OrderEssay.net

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