Financial Markets and Institutions

Financial Markets and Institutions

Directions: Answer five of the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both.

1. Explain how the credit crisis affected the default rates of junk bonds and the risk premiums offered on newly issued junk bonds.

2. Explain the conditions that led to the debt crisis in Greece.

3. Is the price of a long-term bond more or less sensitive to a change in interest rates than to the price of a short-term security? Why?

4. Explain why the stock price of a firm may rise when the firm announces that it is repurchasing its shares.

5. Is the price of a long-term bond more or less sensitive to a change in interest rates than to the price of a short-term security? Why?