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Suppose the Fed had a policy of responding to asset-price bubbles. Under this policy, it would have set higher interest rates than it actually did during the stock market boom of the late 1990s and the housing bubble of the 2000s.
a. For the period 1990-2007, draw a graph showing roughly what interest rates the Fed would have chosen under the antibubble policy. Compare this hypothetical interest rate path to the actual path of rates (see Figure).
b. How would the antibubble policy have changed the behavior of output and inflation? Draw rough graphs comparing the likely paths of these variables to the paths they actually followed. In this part of the question, assume the antibubble policy was unsuccessful: stock and house prices rose rapidly despite higher interest rates.
c. Now suppose the hypothetical policy succeeded: it dampened the stock market and housing bubbles. How does this change the answer to part (b)?
Complete the proof of Theorem 4.2 by showing that any finite optimal solution of the relaxation dual of a linear programming problem is an optimal solution of the inference dual with the same optimal value.
Central Systems, Inc. desires a weighted average cost of capital of 8 percent. Assume that there are no taxes, the firm has a cost of debt of 5 percent and a cost of equity of 10 percent.
You invest $3,000 annually in no-load mutual fund that has a 5% exit fee. The fund earns 10% annually before fees, and you reinvest all distributions. How much will you have in the account at the end of 20 years
Your first assignment is to determine if the fund you are managing should invest $25 million dollars in the stock of the company you have selected for your first analysis/investment decision.
Expected cash dividends are $3.00, the divedend yield is 4%, flotation costs are 4% of price, and the growth rate is 3%. Compute cost of new common stock.
An all-equity firm is considering the projects shown below. The T-bill rate is 6 percent and the market risk premium is 9 percent. Calculate the project-specific benchmarks for each project.
This year Lloyd, a single taxpayer, estimates that his tax liability will be $10,000. Last year, his total tax liability was $15,000. He estimates that his tax withholding from his employer will be $7,800.
The Seattle Corporation has been presented with an investment opportunity which will yield end-of-year cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10.
describe the difference in economic profit between a competitive firm and a monopolist in both the short and long run. Which should take longer to reach long-run equilibrium.
A company is trying to decide whether to revise its target capital structure. Currently, it targets 50% debt and 50% equity. However, it is considering changing the mix to 70% debt and 30% equity.
Diddy Corp. stock has a beta of 1.3, the current risk-free rate is 5 percent, and the expected return on the market is 14.50 percent. What is Diddy's cost of equity
Six years from today you need $10,000. You plan to deposit $1,600 annually, with the first payment to be made a year from today, in an account that pays a 7% effective annual rate.
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