present value yield to maturity total returnecon.ucsb.edu/~bohn/135/slides04.pdf · [notes on...

[Mishkin ch.5 - P.1]

Demand and Supply for Financial Assets Mishkin ch.5: The Bond Market

- - -

1.

2. –

3. => DEFER

[Mishkin ch.5 - P.2]

Perspective #1: Bonds as Financial Assets

- 1. Expected return (+) 2. Risk (-) 3. Liquidity (+) -

[Mishkin ch.5 - P.3]

all

relative - negatively related relative

relative relative - positive related

- - Re-valuation new

- New savings - . - => Real

- -

[Mishkin ch.5 - P.4]

The Supply of Bonds

defines - -

- - - - - => Real

. =>

–

[Mishkin ch.5 - P.5]

Demand & Supply => Equilibrium Price and Volume - h

[Mishkin ch.5 - P.6]

Application: Demand for other financial assets

Same basic argument as for bonds: -

provided

-

Additional issue for equity-type assets: future payments are uncertain

- -

[Mishkin ch.5 - P.7]

Application: The “Flight to Quality”

relative

- – -

Demand

Stocks

PriceSupply

Stock Market

Demand

Bonds

PriceSupply

Bond Market

–

[Mishkin ch.5 - P.8]

Related Perspectives

- - - - - -

Asset Pricing – - -

[Mishkin ch.5 - P.9]

Systematic Analysis: Predict the Effect of hanges

-

-

- -

[Mishkin ch.5 - P. ]

Overview #1:

Demand

[Mishkin ch.5 - P.11]

Overview #2:

Supply

[Mishkin ch.5 - P.12]

[Caution: Distinguish real and financial investments!]

[Mishkin ch.5 - P.13]

Scenario: Increase in Expected Inflation

s

Fisher effect)

Δi = Δπ e

π e

Δi ≠ Δπ e]

[Mishkin ch.5 - P.14]

Preview: More Applications of Financial Markets Analysis

1. The Risk-structure of interest rates - - Y

2. The Term Structure of interest rates - – DEFER.

3. Demand & Supply in the stock market – DEFER.

4. The Market for Foreign Exchange - - - .S

D