Questions

5-1 Explain why the return associated with an investment includes both the income

paid by the issuer and the change in value associated with the investment. (at least 80 words)

5-3 Which fluctuate more, short-term or long-term interest rates? Why? (at least 80 words)

5-4 Suppose a new process was developed that could be used to make oil out of

seawater. The equipment required would be quite expensive but would, in time,

lead to very low prices for gasoline, electricity, and other types of energy. What

effect would this development have on interest rates? (at least 80 words)

5-6 Suppose interest rates on long-term Treasury bonds rose from 5 to 10 percent

as a result of higher interest rates in Europe. What effect would this change

have on the price of an average companys common stock? (at least 80 words)

5-8 How are the values of financial assets affected by changes in interest rates? (at least 80 words)