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. 2. Suppose interest rates on residential mortgages of equal risk were 8 percent in California and 10 percent in New York. Could this differential persist? What forces might to equalize rates? Would differentials in borrowing costs for businesses of equal risk located in California and New York be more or less likely to exist than differentials in residential mortgage rates? Would differentials in the cost of money for New York and California firms be more likely to exist if the firms being compared were very large or very small? What are the implications of the trend for financial institutions to become large mega banking organizations and to engage in nationwide branching?
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.
2. Suppose interest rates on residential mortgages of equal risk were 8 percent in California and 10 percent in New York. Could this differential persist? What forces might to equalize rates? Would differentials in borrowing costs for businesses of equal risk located in California and New York be more or less likely to exist than differentials in residential mortgage rates? Would differentials in the cost of money for New York and California firms be more likely to exist if the firms being compared were very large or very small? What are the implications of the trend for financial institutions to become large mega banking organizations and to engage in nationwide branching?
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