Which theory would most likely explain why a commercial bank, which usually focuses on short-term securities, would switch to long-term securities due to a change in interest rates. pure expectation liquidity premium segmented market preferred habitat

Answers

Answer 1

Answer:

preferred habitat

Explanation:

According to the preferred habitat theory, if the expected returns from investment of a particular investment maturity is large enough, investors would shift from their preferred maturities.

In this question, there is a shift from the preferred maturity (short-term securities) to a long-term securities when interest rate changes

The pure expectations theory assumes that bonds of any maturity are perfect substitutes for each other. For example, if an investor buys a 10 year bond and holds it for 1 year, the return is the same as buying a 1 year bond. The theory also assumes that risk premium does not exist and a security only earns its risk free rate

Liquidity premium theory states that risk premium increases with the maturity of a bond. The theory predicts that the yield curve is upward sloping due to liquidity premium

According to the segmented market theory, each bond maturity segment can be thought of as a segment market in which yield are a function of the demand and supply for funds in that maturity.


Related Questions

Three months of rent were prepaid on May 1 for $7,200, but two months have now expired, leaving only one month prepaid at June 30. What is the amount of rent expense that will be recorded in the related adjusting entry dated June 30?a- $0b- $2,400c- $4,800d- $7,200

Answers

Answer:

b- $2,400

Explanation:

The computation of the amount that should be recorded is given below:

= 3 months rent ÷ number of months

= $7,200 ÷ 3 months

= $2,400

Hence, the amount of rent that should be recorded is $2,400

Therefore the option b is correct

The same should be considered

A consumer has $180 in monthly income to spend on two goods, D and G, where D is on the y-axis. The price of good D, PD is $6, and the marginal rate of transformation is -2. How many units of good G can be purchased if all income is used to purchase good G

Answers

Answer:

The number of units of good G that can be purchased if all income is used to purchase good G is 15 units.

Explanation:

Since D is on the y-axis, indicating G is on the x-axis, the formula for calculating the marginal rate of transformation (MRT) is given as follows:

MRT = - PG / PD …………………. (1)

Where:

MRT = Marginal rate of transformation = -2

PG = Price of good G = ?

PD = Price of good D = $6

Substituting the relevant values into equation (1) and solve for PG, we have:

-2 = - PG / $6

PG = -2 * (-6) = $12

Therefore, we have:

Number units of good G if all income is spent on it = Monthly income / PG = $180 / $12 = 15

Therefore, the number of units of good G that can be purchased if all income is used to purchase good G is 15 units.

Dave's Duds reported cost of goods sold of $1,600,000 this year. The inventory account increased by $130,000 during the year to an ending balance of $465,000. What was the cost of merchandise that Dave's purchased during the year?

Answers

Answer:

$1,730,000

Explanation:

Calculation to determine the cost of merchandise that Dave's purchased during the year

COGS $1,600,000

Add: Increase in inventories $130,000

Purchases $1,730,000

($1,600,000+$130,000)

Therefore the cost of merchandise that Dave's purchased during the year is $1,730,000

Carol Co. prepares a statement of cash flows starting with net income and then adjusting for items necessary to obtain net cash provided or used by operating activities. Carol Co. must be using the______method of reporting the statement of cash flows.

Answers

Answer:

indirect

Explanation:

From the question we are informed about Carol Co. prepares a statement of cash flows which start with net income and then adjusting for items necessary to obtain net cash provided or used by operating activities. In this case, Carol Co. must be using the

indirect method of reporting the statement of cash flows. In financial accounting, cash flow statement can be regarded as financial statement which express the way changes in balance sheet accounts as well as income affect cash and cash equivalents, and also give the analysis breakdown to operating, financing as well as investingactivities.

The methods for reporting statement of cash flows could be Direct or indirect method.

The indirect method can be regarded as method that gives presentation of the statement of cash flows by strating

with net income or net loss, along with deduction or additions to the amount for non-cash revenue and expense items or from them which comes subsequently, which then results to cash flow from operating activities.

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