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Week 3
1. Suppose that the nominal interest rate for the coming year is 9% and inflation is expected to be 5%. Compute the real interest rate for this time period. If (nominal) interest payments are taxed at a rate of 30%, what is the after-tax real interest rate?
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. Suppose you wish to price a consol bond, a bond with no maturity date. The bond pays $120 interest to the holder at the end of the first year, then $100 in each year of the bond's (infinite) life after that. If the interest rate is expected to be 11% for the first year, then 10% thereafter, what is the price of this bond?
4. Suppose you work at a bank and grant a simple loan for $100 000 that requires payment of $200 000 in four years' time. What is the yield to maturity on this loan?
5. You own a discount bond with a face value of $1000 and a current market price of $875. The bond matures in exactly one year. Calculate its yield to maturity and yield on a discount basis. Is the yield on a discount basis higher or lower than the yield to maturity? What are the sources of this understatement or overstatement?
Using labor supply and demand graphs for both the Keynesian and classical models show that involuntary unemployment may exist in one model but not the other. What contributes to involuntary unemployment?On separate graphs, please show the effects of ..
If the CPI went from 106 to 111 during the past year, Illustrate what was the rate of inflation.
Define Market and Market Equilibrium? a. By using the demand and supply equations given below, prepare schedule and draw demand and supply curves?
1.what factors are important in determining the length of the imitation lag and the length of the demand lag?
A firm has two production plants where they produce the same product. The cost function at plant #1 is A) If the firm wants to produce Q total units of output, what fraction of Q will be produced at plant #1? What fraction at plant #2? Show all wo..
1. john has been in the habit of mowing willas lawn each week for 20.johns opportunity cost is 15 and willa would be
onsumption expenditures. bignore inventories because they do not represent final goods. csubtract increases in
What is the Consumer Price Index and how has the CPI behaved since the year 2000? What have been the causes of these changes? In your response, include a graph of the CPI for this period and cite your source.
Consider an asset that costs $140 today. You are going to hold it for 1 year and then sell it. Suppose that there is a 25 percent chance that it will be worth $90 in a year, a 25 percent chance that it will be worth $130 in a year, and a 50 percent c..
Illustrate what might be some practical problems or issues the country might face with this proposed plan.
Find (algebraically) the points where the MC function intercepts the AVC and the ATC functions. (Hint: at one interception point MC = AVC and at the other MC = ATC)
A statistical agency measures the price index using a basket of consumer goods. This table shows the price in dollars for this basket of goods for four years.
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