Mortgage Rates and Risk What is the general relationship between mortgage rates and long term government security rates? Explain how mortgage lenders can be affect by interest rate movements. Also explain how they can insulate against interest rate movements.

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o Mortgages are securities used to finance real estate purchasesthat originate from various financial institutions. How arefinancial institutions affected by interest ratefluctuations?

o What is the relationship between mortgage rates and long-termgovernment security rates?

2. How Interest Rates Affect Bond Prices

Explain the impact of a decline in interest rates on:

a. An investorâs required rate of return.

b. The present value of existing bonds.

c. The prices of existing bonds.

3. Relevance of Bond Price Movements Why is the relationship between interest rates and bond prices important to financial institutions

5. Exposure to Bond Price Movements How would a financial institution with a large bond portfolio be affected by falling interest rates? Would it be affected more than a financial institution with a greater concentration of bonds (and fewer short-term securities)? Explain

7. Coupon Rates If a bondâs coupon rate were above its required rate of return, would its price be above or below its par value? Explain

me?

9. Required Return on Bonds Why does the required rate of return for a particular bond change over time?

10. Inflation Effects Assume that inflation is expected to decline in the near future. How could this affect future bond prices? Would you recommend that financial institutions increase or decrease their concentration in long-term bonds based on this expectation? Explain

rosesea-lion767

3. Relevance of Bond Price Movements Why is the relationship between interest rates and bond prices important to financial institutions

7. Coupon Rates If a bondâs coupon rate were above its required rate of return, would its price be above or below its par value? Explain

me?

9. Required Return on Bonds Why does the required rate of return for a particular bond change over time?

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Mortgage Rates and Risk What is the general relationship between mortgage rates and long term government security rates? Explain how mortgage lenders can be affect by interest rate movements. Also explain how they can insulate against interest rate movements.

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