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?

2. Pretend that today is your birthday and you decide to start saving for your retirement. You will retire on your 65th birthday and need $4,000 per month for the next 20 years, increasing $100 per month after the first month. You will make your first withdrawal on your 65th birthday, the day you retire. You will make the first deposit today in an account paying 7% interest compounded daily, and continue to make the same $123.07 equal weekly deposits up to your 60th birthday, then you stop making deposits. What birthday are you celebrating today? Create a cash flow diagram.

31) Suppose in 2017 you buy two year $1,000 face-value 5% coupon bond for $1,000. In 2018, interest rates decrease to 2%. If you decide to sell your bond in 2018, what will be the selling price of your bond and one-year rate of return for you? A) $1,020; 7% B) $1,000; 2% C) $971; -2.1% D) $1,029.4; 7.9%

Consider a U.S. Treasury Bill with 270 days to maturity. The face value is $100. If the annual yield is 4.7 percent, what is the price? (Note: Treat 270 days as 9 months, or 9/12 of a year using a 360-day year.)

Suppose that a 2-year zero-coupon bond with face value $1,000 currently sells at $840, while a 1-year zero-coupon bond with face value $1,000 currently sells at $920. You are considering the purchase of a 2-year coupon bond that pays coupon annually. The face value of this coupon bond is $1,000 and coupon rate is 12% per year.   Required: a. What is the yield to maturity of the 2-year zero-coupon bonds? b. What is the current price of the 2-year coupon bond? c. What is the forward rate of the second year? d. If the expectation hypothesis is accepted, what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding period return on the coupon bond over the first year? e. Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis?

Now that young King Solomon has inherited the kingdom of Israel, and a massive amount of wealth that he can invest, he wants to plan for his "retirement." Since he doesn't know how long he'll live, and data on life expectancy is scarce, he reasons that he just wants a regular "cash flow" over the course of his life. With that in mind, how many shekels would he need to deposit at 20 percent interest compounded every year in order to be able to withdraw 50 shekels at the end of every year for seventy years?

Indicate which one of following statements is true for a coupon bond: A) When the price of a bond is above its par value, the yield to maturity is greater than the coupon rate. B) The yield to maturity and the price of a coupon bond are positively related. C) When the price of a coupon bond equals its face value, the yield to maturity equals the coupon rate. D) When the price of a bond is below its par value, the yield to maturity is less than the coupon rate Support your answer with the use of a formula and explain in detail all the assumptions you make and all the components you use. (You may also want to use a yield calculator to verify you answer).

a) Consider an investment which, for an initial charge of £10,000, returns £10,700 after three years. What is the internal rate of return of this investment? Enter your answer as a percentage to three significant figures. Do not enter the % sign. For example, if your answer is 1.23%, then enter 1.23. b) Suppose that an investment has internal rate of return 1.05% and that the current interest rate compounded annually is 1.1% Is the investment worth making?

Find the spot rate for a theoretical 2 year zero coupon bond using the following information: 6 month T-bill rate = .5% 1 year T-Bill rate = .75% 1.5-year T-Note rate = 1.10% 2-year T-Note rate = 1.65%

Consider a bond with a face value of $2,000 that pays a coupon of $50 for 1 year (that is, you will receive both the face value and one coupon payment next year). Suppose the bond is purchased at $2,000. What is the yield to maturity of the bond?     2.5%     25%     1.025%     1.25%