QUESTIONS

1. The recent COVID-19 has put the country on lockdown for three (3) months. The Bangko Sentral ng

Pilipinas (BSP) implemented a series of rate cuts in 2020 from 4% at the start of the year to only 2.25%

by June. Why did the BSP decide to decrease policy rates?

2. Why are bond investors buying the long term bonds? Use the pure expectations theory in explaining the answer.

3. ABC Company experiences liquidity pressure due to the 2 months lockdown. Its bond was issued two years ago with a coupon rate of 4% is now trading at 7% yield. ( give the interpretation in this scenario).

4. The government starts to push through with its infrastructure activities. The government decides to hype borrowings. Government bond yields up by 50 bps. (give the interpretation in this scenario