Draw a supply/demand diagram to model the US stock market (use the
value of a stock price index such as the S&P 500 to represent the
overall level of stock prices.) Show the effect on stock prices of a
decline in interest rates in the economy. (hint: from the view point of
those with accumulated savings to invest, interest bearing financial
assets such as money market funds and bank certificates of deposit are
substitutes for stock market mutual funds....also, from the viewpoint of
future corporate sales, lower interest rates mean that customers can
more cheaply finance the purchase of goods)
The US treasury isn't the only issuer of bonds. Corporations also issue
bonds that have future payment structures like U.S. Treasuries. Of
course, unlike the federal government, corporations can go bankrupt,
leaving their bondholders unable to collect all of their scheduled
payments. Because of this risk of default, corporate bonds must have a
higher yield in equilibrium than similarly structured Treasury bonds.
Under what economy-wide economic conditions, if any, might you expect to
see corporate bond yields rise while Treasury Bond yields fell?
In the same context of Q6 above, briefly explain why the prices of Short
Term US treasury securities are still high enough to keep the interest
low enough despite the fact that the US Bond rating has been downgraded
from AAA status to AA+ by S&P in July, 2012.
I just need the answer to question 5 and 7 asap