Suppose an investment bank buys $100 million worth of mortgage-backed securities. It finances the purchase by borrowing $90 million and using $10 million from its equity
If the value of holdings of mortgage-backed securities declines by 5%, what is its return on equity investment?
Its leverage ratio is $100 million/$10 million = 10. The return on equity investment is -$5 million/$10 million = -50%.
Economics
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The bond supply curve slopes up because
A) interest rates rise as bond prices rise. B) when bond prices are high, inflation is high. C) the lender is willing and able to offer more bonds when the price of the bond is low. D) the borrower is willing and able to offer more bonds when the price of the bond is high.
Economics
Opportunity cost of an activity
a. Is known to all parties b. Cannot be measured in dollar terms c. May include both monetary costs and foregone incomes d. Is known with all certainty
Economics