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Week 4:
1. Suppose a municipal bond is paying an interest rate (yield to maturity) of 5.25%, while a corporate bond is paying an interest rate of 5.60%. Assuming these two bonds are otherwise identical (same level of risk, etc.), at what tax rate would an investor be indifferent between purchasing one bond or the other? Suppose the tax rate is actually 5%. Which bond would an investor rather purchase?
2. Price a bond that matures in two years with face value of $1000 and coupon rate of 7% if the real interest rate is 3% and inflation is expected to be 2% for the first year of the bond's life and 3% for the second year of the bond's life.
3. Let the spread (ask price minus bid price) on a 90-day Treasury bill be $0.0023 on a certain date. If the asked yield on this T-bill is 3.84% (a discount yield on an annualized basis), what must the bid yield be on that date? Use the approximation 1 year = 360 days.
The marginal rate of technical substitution is MRTS = ΔK/ΔL , If labor input, L, is decreased by one unit, by how much must one increase capital, K, to hold production constant? The answer is given by MRTS.
Suppose the Demand for baseballs is given by Q = 240 – 8P. What is the price elasticity of demand when P = 6? At what price will Total Revenue be maximized?
Consider the pricing problem of Alcoa's cookware division. Suppose that the world last for only two periods, period 1 and period 2. A saucepan last two periods, so that a saucepan that is bought in period 1 can also be used in period 2. Consumers val..
If the firm does not shut down in the short run when price equals $4, what will be the firm's production level? Calculate the firm's fixed cost and variable cost at this level of production. What is the break-even price for the firm? What is the sh..
With an aid of diagram (consist of both demand & supply curves) show & explain what happens to the equilibrium price & quantity when:1. the preference for pepsi suddenly increases 2. the price of milk has increased which increased the cost of ice cre..
A company has sales of $300,000 with variable expenses of $210,000, fixed expenses of $110,000, and net loss of $20,000. How much would the company have to sell in order to achieve an operating income of 5% of sales?
In a peak-load pricing situation, explain why, at the optimal capacity, peak users would pay a price in excess of long-run marginal cost whereas off-peak users would pay a price equal to marginal operating costs.
Determine how the following situations will affect the demand curve for ipods.
Using the information in this chapter, label each of the fol- lowing statements true, false, or uncertain. Explain briefly. The original Phillips curve is the negative relation between unemployment and inflation that was first observed in the Un..
A firm with a CD production function Q = 2K 0.5 L0.4 plans to produce 500 units of output per day. Assume the price of labor and capital are w = $50 and r = $100 a day- What is the firm's optimal combination of factors that minimizes its cost
Write the model in matrix form and determine the equilibrium values of national income, consumption, investment, and tax.
problemanswer the following true t or false f questions1. to account for the time value of money we must multiply a
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