Very Interest-ing
Interest rates rise when the economy is performing well
(True or False)
Why?
True (slow down inflation, disincentivize spending and investments)
Reciprocal - rates fall when the economy is struggling (stimulate economic activity, encourage spending, broader access to capital)
This index tracks 30 large U.S. companies and is often used as a market benchmark
A. Dow Jones Industrial Average
B. S&P 500
C. NASDAQ Composite
100 Point bonus: Which of the above 3 indexes has performed the best over the last 40 years?
200 Point bonus: What has been the average return over those 40 years?
A. Dow Jones
100 point Bonus: S&P 500
200 point Bonus: 11-12%
On average, Bonds yield more than Stocks
(True or False)
False
Generally speaking, bonds tend to yield less because of risk/volatility and other variables
Individual banks set/determine market interest rates (True or False)
100 Point Bonus: The Federal Reserve is the _____ _____ of the United States.
False
Central Bank
US Treasury yields are considered to be the benchmark (risk-free) rates of return that other investments are compared to (True or False)
Why?
True - in theory, no investment is safer than the US government - When you buy a Treasury Bond or Bill you are providing debt to the government - so hopefully they pay you back when it's time... therefore, every other investment (that carries risk) is compared to that benchmark rate. a.k.a. risk based pricing = higher risk, higher reward)
Current Prime Rate is.....
A. 4.00%
B. 5.50%
C. 7.00%
D. 7.25%
300 Point bonus: How is prime rate calculated?
D. 7.25%
Bonus: Add 3% to Fed Funds Rate
Stock prices move in the same direction as bond prices
(True or False)
False
Purchasing a Bond gives you ownership in a company (True or False)
In the simplest form, Bonds are.....?
False
Bonds are debt, not equity
What does FOMC stand for?
A. Financial Oversight and Management Center
B. Federal Open Market Committee
C. Financial Oversight and Management Committee
D. Federal Open Market Census
100 Point Bonus: Does this committee set short-term interest rates or long-term interest rates?
B. Federal Open Market Committee
Bonus: short-term
The yield curve compares yields of bonds with different _______ ?
A. Maturities
B. Risks
C. Principal balances
A. Maturities
What is the term for a situation where inflation is high but economic growth is slow?
A. Inflation
B. Stagflation
C. Deflation
D. Reflation
A stock IPO stands for...
A. Initial Private Offering
B. Initial Public Offering
C. Investment Private Offering
C. Investment Public Offering
B. Initial Public Offering (when companies first offer their stock to the public markets - raise capital)
A Bond's Coupon refers to the _____ that the issuer is paying
Rate
How many Federal Reserve Banks are there?
A. 4
B. 6
C. 8
D. 12
200pt Bonus: What district is Branson Bank part of?
D. 12
Bonus: St. Louis Fed
A 'normal' or 'healthy' Treasury yield curve is sloping in what direction from left to right?
A. Upward
B. Downward
C. Flat
D. Inverted
A. Upward
https://www.gurufocus.com/yield_curve.php
The longer (maturity) you go out on an investment, the higher yield you would expect to compensate you, why?
I need to be incentivized to purchase a 30 year bond at 5% because 2 years from now yields could go up to 7% and then I'm losing money (in the form of opportunity cost)
We can't predict what interest rates are going to be (True or False)
Why?
True - there's no way to predict interest rates because there's no way to predict global conflicts, pandemics, rampant inflation, economic performance
BUT there is the Fedwatch tool that provides a "foggy compass" (unofficial term) - walk through dot plot vs probabilities
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
DAILY DOUBLE - How many rolls does Lambert's make per year?
Each team submits an answer - (closest answer without going over wins double points, no penalty for wrong answer)
2,246,000
Bond prices have an inverse relationship with interest rates
(True or False)
Why?
True
When rates rise, bond prices go down because new bonds are issued at higher rates than old ones, this means the face value of the bond must be sold at a discount in order to adjust/compensate for the lower coupon of the bond)
Discuss SVB - purchase a 3% coupon on a bond at par 100. Market rates rise and new bonds of equal risk are now going for 5% - why would anyone buy the 3% bond? So to offload it, you'd have to sell it at say a 91.27 discount (reverse would be a premium) - Mark to Market on balance sheet - unrealized losses
What are the objectives of the Fed's dual mandate? PICK THE 2 CORRECT ANSWERS:
A. Keep unemployment below 6%
B. Achieve maximum employment
C. Maintain inflation at 2%
D. Keep inflation below 5%
B. and C.
An inverted yield curve is often seen as a predictor of this economic event:
A. GDP Expansion
B. Recession
C. Higher Interest Rates
D. Low Treasury Yields
B. Recession
C. and D. are not "economic events" - they are bi-products of economic events
Interest rates are the highest they've been in 40 years? (True or False)
100 Point Bonus: In the last 70 years, what was/is the high water mark for interest rates? - must be +/- 2%
False (they're as high as they've been since 2007 and lower than even 2000)
https://fred.stlouisfed.org/series/FEDFUNDS
show rate cycle in connection with recessions - peak, drop, repeat
Bonus: 20%
What financial metric compares a company's stock price to its earnings?
A. Dividend Yield
B. P/E Ratio
C. Market Cap
D. Payout Rate
B. P/E
Select the Big Three credit rating agencies - (must get all 3 correct for points):
1. Stifel
2. Standard & Poor's (S&P)
3. UMB
4. The Baker Group
5. Vining Sparks
6. Moody's
7. Fitch
8. Bank of America
9. Wells Fargo
10. FDIC
Who is the current Chairman of the Federal Reserve?
A. Jerome Powell
B. Marco Rubio
C. Philip Jefferson
D. Bill Jones
E. Ron DeSantis
F. Robert Kennedy
G. Michael Barr
H. Michelle Bowman
I. Adriana Kugler
A. Jerome Powell
US Treasury yields change as often as...
A. by the hour
B. by the day
C. by the week
D. by the month
E. by the year
A. by the hour (treasury yields can fluctuate throughout the trading day as news, market influences, economic data, geopolitical stories, etc. unfold and impact the rates offered on US debt)
https://www.cnbc.com/quotes/US2Y