PLEASE DO YOUR OWN WORK; TEACHER WILL BE CHECKING TO SEE IF ANYTHING WAS COPIED BY ANY WEBSITES OR STUDENTS PAPERS.

Financial Markets and Institutions, Ch. 6

Money Market Securities

• 1-How do these types of securities have an impact on the
  typical consumer? What are some of the most common vehicles for buying, holding
  and selling these types of securities?

Financial Markets and Institutions,
Ch. 7

Bonds and you

2-What is the potential benefit of purchasing bonds for an
individual investor? What types of bonds seem to be the most popular with
typical U.S. consumers? Are there any risks associated with bond purchases? If
so, what are they?

Financial Markets and
Institutions, Ch. 8

Default Risk

• 3-A mutual fund’s sales literature claims the fund has no
  risk exposure because it invests exclusively in federal government securities,
  which are free of default risk. Is this true? Explain your answer.

Financial Markets and
Institutions, Ch. 9

Interest Rate
Risk

• 4-Describe an interest rate risk you face in your personal
  life. How is it different from a credit risk? Which is easier to manage?
  Explain your answer.

PLEASE REWORD THIS PARAGRAPH IN
YOUR OWN WORDS. DO NOT COPY THE EXACT WORDS THAT ARE ON THIS PARAGRAPH.

• 5-We know that bond prices move in the opposite direction
  of interest rates and this video is the simplest explanation I have seen of how
  that relationship works. The video explain that as interest rise the price of
  the bond has to down because investors will not settle for a lower return.
  Investors feel they need to be compensated for the risk they take when loaning
  company money so, if an identical bond is offering a hinder interest rate they
  will go for that bond instead of the lower paying one. This is a simple supply
  and demand. If the price of the bond will have to decrease until it becomes
  attractive to investors. The inverse is true about if interest rates go down.
  If interest rates go down investors will now want the bond that pays a higher
  interest so they will turn bid the price up of the bond.

PLEASE ANSWER THESE QUESTIONS

6-How does the average consumer make a smart decision about
whether and when to invest in bonds, based on looking at these factors?

7-in the
situations that we recently experienced, where interest rates have remained
static for several years, how can potential bond investors make intelligent
decisions about the best price to pay for a bond?

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