nog ff aan chat vragen

hoe doe ik een discount bond van 4 jaar to maturtiy

het is goedkoper voor de bedrijven om geld te lenen als de rente laag is, dus daarom verhoogd de supply of bonds

R^e

uitlenen

lenen

because monitoring is costly, so the other shareholders try to make the other shareholders pay for the monitoring.

However, there is trade-off between safety with high levels of capital and the return on equity (ROE) for holders of bank capital

but also diversify the sources of funds.

Balance the need for liquidity against the larger returns from less liquid assets.

Lower the credit risk (i.e., the default risk) of their asset portfolio by diversifying and also lower the interest-rate risk of their asset portfolio.

i.e., diversifying between different types of securities.

i.e., that are unlikely to halt interest payments and/or repayment of the borrowed amount.

1. Holding large excess reserves is costly, since lending them brings a larger reward.

link to financial regulation

it must be (adequacy) in brackets

net worth

corporate, bank and government bonds

(restrictive covenants).

Issuing marketable debt and equity securities (bonds and stocks) is not the primary funding source for businesses.

(assets that guarantee payment in the case the borrower is unable to make debt payments)

stocks

longer than 10 years

Application: Investing in the Stock Market • Recommendations from investment advisors cannot help us outperform the market. • A hot tip is probably based on information that is already contained in the price of the stock. • Stock prices respond to announcements only when the information is new and unexpected. • A “buy-and-hold” strategy is the most sensible strategy for the small investor (savings of transaction costs) or buy shares into a mutual fund.

coupon or dividend

X-X^e

optimal forecast using all available information

expectation of the variable that is being forecast

return on investment in equity

the price of the stock is only determined by the present value of the future dividend stream

In words: The n-period interest rate, i.e., the interest rate of a bond that matures in n periods from now, equals the average of the one-period interest rates expected to occur over the n-period life of the bond.

similar dynamics

default risk

default risk

However, that is not what we typically observe as evidenced in the following slide. The typical increase in interest rates during business cycle expansions is not that surprising when thinking in terms of the Fisher effect: growing product and labour demand in a business cycle expansion tend to increase expected inflation and nominal interest rates.

this must be G - T

it declinessss!!!!!

Expected return of bonds relative to that of other assets decreases: Bd shifts to the left

Note: The previous slide defined the ex ante real interest rate. Often, also ex post real interest rates are discussed. The ex ante real interest rates are predictions based on the expected inflation rate and thus give an indication of what the real cost (benefit) of borrowing (lending) is expected to be over – for instance – the next year. The ex post real interest rates use the past inflation rate to calculate what the real cost (benefit) of borrowing (lending) has been over – for instance – the past year.

there should be a e on top