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Demonstrate Graphically and Explain the Effect in the Bond Market

question 39

Essay

Demonstrate graphically and explain the effect in the bond market of a decrease in the federal deficit. What is the effect on the interest rate and bond prices? How might capital spending be affected by the deficit?


Definitions:

Information Content Effect

The impact of news or information release on the price and trading volume of securities.

Stock Split

A corporate decision to fragment its current shares into additional shares to raise the market fluidity of the shares.

Clientele Effect

A theory suggesting that the types of investors attracted to a company depend on the company's dividend policy and related tax treatments.

Compromise Dividend Policy

A strategy that aims to balance between retaining earnings for reinvestment and paying dividends to shareholders.

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