Assignment
Part 1
1. Go to: fhfa gov website. What is the interest rate on a 30-year fixed-rate mortgage? What is the rate on a 15-year mortgage? Why is the first above the second?
2. Why would you expect the cumulative total of interest payments under an ARM to be less than those under an FRM of the same maturity? Compare the risks to the borrower.
3. Explain why the market for securitized HELOCs was battered more by the financial crisis (and bursting of the real estate bubble) than the market for GSE MBSs.
Part 2
1. Why is it said that preferred stock is a hybrid between debt (bonds) and equity? Why would investors want to hold preferred shares over equity?
2. Explain how an increase in the risk-free interest rate affects share prices, the equity premium, and the rate of return on internal investments.
3. The stock market is highly volatile. What accounts for this?
Part 3
1. What are the pros and cons of having the central bank playing a key role in the supervision of major financial institutions?
2. In the market for reserves, what determines demand? What determines supply? How does an increase in the discount rate affect supply? An increase in Treasury deposits at the central bank? An open market purchase of securities? A purchase of foreign exchange? A reverse RP? A higher interest rate paid on excess reserves?
3. Suppose that the FOMC decides to raise the target for the federal funds rate later this year. What tools are available to achieve this? Illustrate.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also include a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also Include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.