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Use demand and supply graphs for the federal funds market to analyze each of the following three situations. Be sure that your graphs clearly show changes in the equilibrium federal funds rate, changes in the equilibrium level of reserves, and any shifts in the demand and supply curves.
a. Suppose that the Fed decides to increase its target for the federal funds rate from 2% to 2.25%, while also increasing the discount rate from 2.5% to 2.75%. Show how the Fed can use open market operations to bring about a higher equilibrium federal funds rate.
b. Suppose that banks increase their demand for reserves. Show how the Fed can offset this change through open market operations in order to keep the equilibrium federal funds rate unchanged.
c. Suppose that the Fed decides to increase the required reserve ratio, but does not want the increase to affect its target for the federal funds rate. Show how the Fed can use open market operations to accomplish this policy.
What should the higher strike price be to create a zero-cost contract? - What position in calls and puts should the company take?
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A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.3%. What is the standard devia..
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Delagold Corporation is issuing a zero-coupon bond that will have a maturity of fifty years. The bond's par value is $1,000, and the current yield on similar bonds is 7.5%. What is the expected price of this bond, using the semiannual convention?
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Suppose you are able to borrow funds with a 3-year loan with monthly loan payments to finance the capital investment. The bank has agreed to a interest rate matching the appropriate discount rate on the project(or projects). Prepare a loan amortizati..
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