HW-3 1

HW-3
1. What happens to Bond prices, quantities and interest rates if and demand graph for bonds for each question (15 points): 
a) Increase in wealth b) Increase in risk c) Decrease in liquidity 
ake sure to include the supply 

2. Explain the 4 tools of monetary policy and how they impact interest rates, financial markets, housing, and GDP (20 points). Make sure to include the money graph. 
3. What happens to interest rates, financial markets, housing, and GDP if the Fed. raises the Federal Funds interest rate (10 points)? 
4. in an excel spreadsheet, calculate the real interest rate over the past 24 months (using monthly data) for the 30 year Treasury bond rate as the nominal interest rate and assuming that expected inflation was equal to actual inflation (based on the change in CPI). Make sure to include the Fisher Equation (15 points). 
5. Explain Interest Rate Swaps, currency swaps, and stock options. (15 points) 
6. Explain how the Mortgage Secondary Market (Securitization) Works. Make sure to include the major plays and size of the secondary market, the pros and cons, Mortgage characteristics, and 3 types of Mortgage Backed Securities. Should we continue to have Fannie and Freddie? What should the role of our government be in securing them? Why? (25)1