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How much would you pay today for the following coupon bond where the coupon is received once a year over the 5 year holding period. As always show all formulas, calculations and work for full credit.
a. n=5 coupon rate=5% (.05) yield to maturity=i=7% Face=$1000
b. Define interest rate risk. Show using a numerical example that the interest rate risk on a long term bond is greater than that on a short-term bond.
c. What is the yield to maturity on a money market instrument with 250 days to maturity and a face of $1000 that is currently priced at $985.
d. What is the yield on a discount basis on a money market instrument with 270 days to maturity and a face of $1000 with a current price of $975.
e. What nominal rate of interest (yield to maturity) would you require if you lent $1000 and you required a real rate of return of 6.5% (ir) with an expected rate of inflation of 2%.
f. What is the yield to maturity on a fixed payment loan of due in 4 years that is currently priced at $500 with a fixed future payment in four years of $750.
Next, explain how this theory explains all three empirical observations(Preferred Habitat Theory). Interest rates on bonds of different maturities move together over time.
Heart Plus faces a cost of holding inventory that is higher than its competitors. The salespeople are clearly overstocking hospitals in their territory. They have asked you to figure out how to fix the problem. Is there any incentive to make a good d..
Applying the liquidity preference model describe the following impact on interest rates: a. An open market sale by the Federal Reserve. b. Explain the effect of an open market purchase on interest rates. Make sure you discuss the liquidity effect, re..
Applying the Bond Market Model explain completely how each of the following would influence the price of bonds and interest rates (Explain your answers using supply and demand graphs):
To ensure that the correct size of heart valve is available for heart surgery, Heart Plus, the maker of the valves employs salespeople to place and maintain inventories at hospitals in its market. Heart Plus faces a cost of holding inventory that is ..
Using diagrams for aggregate expenditures (AE) and aggregate demand and supply (AD-AS), show the short-run effects each of the following events has on the Canadian economy.
A newspaper has a monopoly on the local news market in a town. The market demand is given by P=1.70-Q/10,000, making the marginal revenue MR=1.70-Q/5,000. The marginal cost is constant at equal to 0.30. The fixed cost is 4,000. Variable cost is 0.30Q..
Suppose the supply curve of medical services is perfectly inelastic. What is the shape of supply curve (e.g. vertical, horizontal, upward sloping)? Please also analyze the impact of an increase in consumer income on the market price and quantity of m..
You are given the following information. The current dollar pound exchange rate is $2 per pound. A U.S basket that cost $100 would cost $120 in the United Kingdom. What is the current U.S real exchange rate qUS/UK with the United Kingdom? How much is..
A network carrier serves some small cities close to its hub with regional jets which have much higher seat-mile-costs (CASM) than larger mainline jets. The average fare from these cities to the hub does not cover fully allocated costs. Is this ration..
You are buying a house for $300,000. The terms of the mortgage include a 30-year loan (fixed rate) and annual interest rate of 4.5%, compounded monthly, and a 20% cash down payment is required. What are your monthly payments on this loan?
Examine your opinion on the death penalty. Defend why you are for the death penalty or against it. Be sure to be specific in your defense on your stance.
Heckscher Ohlin model with two goods (wheat and cloth) and two inputs (land and labor), suppose price of cloth rises by 10% and the price of wheat remains the same. Wheat is land intensive and cloth is labor intensive. the rise in the price of cl..
What is a minimum monthly rent required to make this investment economically acceptable if the company's minimum attractive rate of return is 6% per year, compounded monthly?
The benefits of decentralization, denoted B, = 3D and the costs of decentralization, denoted, C = 2D + 2D2. What is the optimal level of decentralization (D)? Explain.
In what ways does the Krugman model of trade differ from the Heckscher-Ohlin model of trade? Carefully explain. In what ways does the Linder theory of trade differ from the Heckscher-Ohlin model of trade? Carefully explain.
Why Should we remove all barriers to immigration into the United States. What would be the outcome.
Calculate the Value of SDR given that SDR is equal to: $66, .42 €, 12.5¥, and .111£. And today's exchange rates are as follows: What is the value of an SDR in dollar terms?
在巴西平均工人可以生产一盎司of soybeans in 20minutes and an ounce of coffee in 60 minutes, while an average worker in Per can produce an ounce of soybeans in 50 minutes and anounce of coffee in 75 minutes.
Consider a small open economy in the short run where the government imposes trade tariffs on corn.
Draw the relevant diagrams for a typical farm, and for the market as a whole, when the market for wheat is in long-run equilibrium
A competitive industry consists of 100 firms. The short-run marginal cost curve for each firm is given by MC=200+30Q. What is the supply function for each firm? What is the market supply function? Calculate the elasticity of supply at the market equi..
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