O If the market interest rate (i) increases today, the Price of a Bond (P) today willdecline.The following are correct statements about the impact of Market Interest Rate (i*) onvalue and return of a typical Coupon Bond, EXCEPT:The YTM of a Bond and the Market Interest Rate (i*) are the same value, even inthe Short Term.O For a long term bond, if the Market Interest rate (i*) is expected to increase, thecurrent Price of such Bond will Decline.For a two period Bond, if the Market Interest rate (i*) is expected to increase inthe next period, the Expected Total Return (RET) on such bond will decline.Long Term Bonds are considered more risky than Short Term bonds, in part dueto the risk associated to changes in future interest rates.

The coupon bonds are the bonds in which the interest rate that the bonds pays to the holders will be…

Answered: O If the market interest rate (i)…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Could you expnad on how you got the equilibrium interest rate value? i don't get 0.065 when is solve the euqation 900 = 50/(1+i) + 50/(i+1)^2 + 1000/(1+i)^2. Also, my answer from plugging into the equation i part a. to find the demand and supply at YTM = 0.05, doesn't match using the same equation to get the answer?
If the interest rate is 10 percent, the present value of an annual payment of $100,000 to be received indefinitely is: a. $976,463. b. infinite. c. $1,000,000. d. $2,000,000. e. $1,246,296.
None
Suppose that the government puts out a tax incentive that encourage people to save more money. Assume that this does not lead to a change in Y* or G, but does lead to a decrease in Consumption. 7. What would we expect to happen to interest rates? Explain your answer. 8. Would this change in interest rates increase or decrease the present value (PV) of the investment that this question is considering? Explain your answer.
Which of the following would ↑ the Qd of LF? Select one: O A. expected profit decreases. B. the real interest rate rises. O C. the real interest rate falls. D. the supply of loanable funds decreases. E. wealth increases. Clear my choice
Suppose that a person's wealth is $50,000 and that her yearly income is $60,000. Also suppose that her money demand function is given by: M = $60,000(0.40 – i) Calculate the demand function for bonds, B. B = Suppose the interest rate increases by 10 percentage points. As a result, the demand for bonds O A. remains unchanged. OB. decreases by 30%. O C. increases by $6,000. O D. decreases by $6,000. In view of the above demand functions for money and bonds, one can conclude that an increase in wealth increases O A. both the demand for money and the demand for bonds. O B. the demand for bonds but has no effect on the demand for money. O C. the demand for money but has no effect on the demand for bonds. O D. the demand for bonds but decreases the demand for money.
If I am looking to purchase a bond, assuming all other factors are equal, which of the following statements are true? OI want to purchase the bond with negative interest rate. I want to purchase a bond with an interest rate as close to zero as possible. OI want to purchase the bond with the lowest interest rate. OI want to purchase the bond with the highest interest rate.
1) If a $2,000 one-year bond pays $170 in annual interest, the interest rate on this bond is (do NOT use decimal)? 2) If the interest rate changes to 19.5%, the bond price will be? 3) If the interest rate changes to 16.5%, bond price will be?
Suppose that the interest rate is 5 percent. Enter your answers rounded to 2 decimal places. A. What is the future value of $100 four years from now? $ How much of the future value is total interest? $ b. By how much would total interest be greater at an interest rate of 7 percent than at an interest rate of 5 percent? $
The remarkable thing about the events described in the article is that the yield an the 3-month T-bill was briefly negative. To see how this could haroen, consider the relationship between bond prices and bond yields. A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entities the holder to $1,000 in three months. For example, if you were to buy a 3-month T-bill on September 24, 2008, with a maturity value of $1,000 and 90 days left to maturity, the U.S. government would pay you $1.000 on December 23, 2008. In general, the price of a bond is less than its maturity value. That is, if you are going to give up a certain amount of money for the duration of the bond, you expect to be paid for this loss of liquidity and compensated for inflation that could reduce the value of the repayment at the end of the period. Therefore, a piece of paper entitling you to $1,000 on December 23 would usually be worth less than $1,000 on September 24. The yield on a bond is a…
5 Suppose y = 6w2x4/z5 . Suppose that w increases 6%, x increases 9% , and z increases 1% . By what percent should y increase? Your answer should be an integer with a % sign assumed to follow
The demand D (in billions of £) for a bond with coupon rate 5% and face value FV = 1000, and two years to maturity as a function of its price P is D = 4000 − 2P. The supply in (billions of £)as a function of the price of the bond is S = 2P + 400. b) Suppose that the yield to maturity of the bond is i = 0.05. What is the quantity demanded/supplied at this interest rate? What happens to the demand/supply of the bond as the interest rate increases? Explain why. c) What is the equilibrium interest rate? d) Suppose that the bond trades at premium. Is there excess demand or supply? Explain. e) There is a business cycle contraction, so both supply and demand shifts. After the shift, the new demand curve is given by: D = 4000 + X − 2P , whereas the new supply curve is S = 2P + 200. For which values of X will the interest increase/decrease? Which values of X are in line with empirical data?

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