Complete the following table by calculating the interest rate on the bond at different sale prices. (Hint: The effective interest rate on a bond is a ratio of the interest payment to the sale price of the bond times 100.) Price of Bond (Dollars) 1,200 Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph. Interest Rate (Percent) Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 15.0 13.5 12.0 10.5 9.0 7.5 6.0 4.5 3.0 1,000 750 600 1.5 0 Interest Rate (Percent) 7.5 9 12 15 500 600 700 800 900 1000 1100 1200 1300 Price of Bond (Dollars) -O Relationship (?) The line showing the relationship between bond prices and interest rates has a other words, there is relationship between bond prices and interest rates. slope; in

Complete the following table by calculating the interest rate on the bond at different sale prices. (Hint: The effective interest rate on a bond is a ratio of the interest payment to the sale price of the bond times 100.) Price of Bond (Dollars) 1,200 Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph. Interest Rate (Percent) Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 15.0 13.5 12.0 10.5 9.0 7.5 6.0 4.5 3.0 1,000 750 600 1.5 0 Interest Rate (Percent) 7.5 9 12 15 500 600 700 800 900 1000 1100 1200 1300 Price of Bond (Dollars) -O Relationship (?) The line showing the relationship between bond prices and interest rates has a other words, there is relationship between bond prices and interest rates. slope; in

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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) A college is considering investing $6 million to add 10,000 seats to its football stadium. The athletic department forecasts it can sell all these extra seats at each game for a ticket price of $20 per seat, and the team plays six home games per year. If the school can borrow at an interest rate of 14%, should the school undertake this project? (Show your math!) What would happen if the school expected a losing season and could sell tickets for only 5,000 of the seats?
Bond A pays $8,000 in 28 years. Bond B pays $8,000 in 14 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.) Suppose the interest rate is 5 percent. Using the rule of 70, the value of Bond A is approximately Now suppose the interest rate increases to 10 percent. Using the rule of 70, the value of Bond A is now approximately I The value of a bond rate. and the value of Bond B is approximately and the value of Bond B is approximately Comparing each bond's value at 5 percent versus 10 percent, Bond A's value decreases by a when the interest rate increases, and bonds with a longer time to maturity are percentage than Bond B's value. sensitive to changes in the interest
You are the CEO of a manufactory firm based in the Country of Eldorado. Suppose the corporate tax rate in Eldorado is 30%, your company Earnings before Interest and Taxes (EBIT) is £450million in 2018 and you have interest expenses of £125million. a. What is your firm's 2018 net income? b. What is the sum of your firm's 2018 net income and interest payments? c. Assume now your firm had no interest expenses, what would its 2018 net income be? Compare the result with your answer in part b. d. Calculate your firm's interest tax shield in 2018. e. "The total value of the unlevered firm exceeds the value of the firm with leverage due to the present value of the tax savings from debt." Is this statement true or false? Explain.
Erin buys a bond that pays no coupon payments for $160. When the bond matures, she receives $200. Erin earned an interest rate of ____________ percent on this bond. (Enter your answer "as a percent, but without the percentage sign." If you think Erin earned 99.99 percent interest, enter only 99.99 in the blank.)
Question 7 The country of Kingsland is considering the introduction of a compulsory retirement saving scheme. Under this scheme all workers are required to save ten per cent of their annual wages and salaries until they retire. Use the supply and demand model (and a diagram) for saving and investment to explain the likely effects of this scheme on national saving, investment and the real interest rate in New Holland. Explain the effects on employment of the saving scheme. (You can assume that New Holland is a closed economy).
Identify the effect of recession in the economy on either demand or supply curve and the equilibrium interest rates. kindly use a graph in your explanation.
2. In a two-period model, Jennifer expects to earn income of £15,000 in the second period but nothing in the current period; whereas Martin has income of £15,000 in the current period (everything adjusted for inflation). The real interest rate for both borrowing and lending is 30%. a) What is the present value of Jennifer’s future income? b) Show diagrammatically why Martin is better off than Jennifer. c) Show diagrammatically the impact of a fall in the interest rate for both Martin and Jennifer. Is it possible for a fall in interest rates to make Jennifer better off than Martin? d) Comment briefly on the implication of your answer to part (c) for the effectiveness of monetary policy carried out by changing the central bank interest rate.
Please answer all parts Bottom choices are: 2014 2015 2016 2017 2018
3. Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate (Percent) 7 National Saving (Billions of dollars) 55 Domestic Investment (Billions of dollars) Net Capital Outflow (Billions of dollars) 30 -15 6 50 40 -10 5 45 50 -5 4 40 60 0 3 35 70 5 2 30 80 10 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. Market for Loanable Funds 10 O Demand 8 O Supply *+ Equilibrium 20 40 80 60 QUANTITY OF LOANABLE FUNDS REAL INTEREST…
investment A promises to pay £500,000 profit at the end of the first year, £550,000 at the end of two years, £600,000 at the end of three years, and £625,000 at the end of four years. Investment B promises to pay £25,000 profit at the end of the first year, £100,000 at the end of two years, £600,000 at the end of the third year, and £1,000,000 at the end of four years. Assume that nine percent per year is an appropriate discount rate for each investment. Also, assume a zero-scrap value for each investment at the end of four years. Determine which investment promises to be the better of the two for the company