Business Finance
Financial Markets Discussion

Question Description

I’m trying to learn for my Economics class and I’m stuck. Can you help?

1. Multiple discount rates for a bond and show how the spot rates are determined.

2. The results of the Fed buying treasury securities from the public on the financial balance sheets of the parties.

3. relationship between risk and coupon rates and maturity. Duration must be in your answer.

4. Required rate of return.

5. Effect on market interest rate changes on money market maturities vs. capital market securities.

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Final Answer




Title: Financial Markets
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Financial Markets
Bond discount is the amount by which a bond’s market price is lower than the principal amount
of the bond that is due at maturity. The spot rate is the return rate of a bond when it is bought and
also sold on the secondary market and when interest payments are not collected. It is calculated
using the following formula: Spot rate = (Face value / The present price of the bond) ^ (1/
Number of years to maturity)-1).
Buying of treasury securities by the Fed is a way that the Fed uses to control the money supply in
the economy. Buying of treasury securities increases the supply of money in the economy. This
affects the balance sheet in two ways. One is that the cash in the current assets increases. The
other one is that it brings a corresponding increase in the shareholder’s equity section in the
balance sheet.
Coupon rate is the annual amount that an investor can expect to get when they hold a bond.
These rates are often fixed by companies or governments when they are issued. The coupon rate
is a determinant in duration calculation. If tw...

Prof_Axel (2030)
Duke University

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