Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 15, Problem 2WNG
To determine
Calculation of selling
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Would a dollar tomorrow be worth more to you today when the interest rate is 20% or 10%?
would bonds still be a good option for investment if interest rates are negative?
You own a zero-coupon bond that will pay 10,000 in two years. The interest rate from 2021 to
2022 is 0.09 and the interest rate from 2022 to 2023 is 0.03. What is the current price of this
bond? Please give your answer to two decimal places. (Hint: one must discount this bond twice:
once from 2022 to 2021; and then again from 2021 to 2020.)
Chapter 15 Solutions
Economics (MindTap Course List)
Ch. 15.1 - Prob. 1STCh. 15.1 - Prob. 2STCh. 15.1 - Prob. 3STCh. 15.4 - Prob. 1STCh. 15.4 - Prob. 2STCh. 15.4 - Prob. 3STCh. 15 - Prob. 1QPCh. 15 - Prob. 2QPCh. 15 - Prob. 3QPCh. 15 - Prob. 4QP
Ch. 15 - Prob. 5QPCh. 15 - Prob. 6QPCh. 15 - Prob. 7QPCh. 15 - Prob. 8QPCh. 15 - Prob. 9QPCh. 15 - Prob. 10QPCh. 15 - Prob. 11QPCh. 15 - Prob. 12QPCh. 15 - Prob. 13QPCh. 15 - Prob. 14QPCh. 15 - Prob. 15QPCh. 15 - Prob. 16QPCh. 15 - Prob. 17QPCh. 15 - Prob. 18QPCh. 15 - Prob. 1WNGCh. 15 - Prob. 2WNGCh. 15 - Prob. 3WNGCh. 15 - Prob. 4WNGCh. 15 - Prob. 5WNGCh. 15 - Prob. 6WNGCh. 15 - Prob. 7WNGCh. 15 - Prob. 8WNG
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- 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.)arrow_forwardJack’s Lock and Key are considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year, and have no effect after then. If the interest rate is 5%, should Jack’s remodel? Defend your answer by showing your work.arrow_forwardwhat happens if consumers expect future interest rates to fall?arrow_forward
- The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the bond then falls by $250, what will be the interest rate yield to a new buyer of the bond?arrow_forwardWhat might cause interest rates to be low one year and high the next?arrow_forwardExplain in a few paragraphs why interest rates have recently been increased in Australia? Use economic theory and models.arrow_forward
- can you solve it with formulas?please make your text readable.arrow_forwardSuppose that your bank pays 4% interest per year on your savings account. Each $100 in the banks grows to $104 over a one-year period. If prices increase by 3% per year, how much do you really gain by keeping $100 in the bank for a year.arrow_forwardBond A pays $8,000 in 20 years. Bond B pays $8,000 in 40 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.) a. If the interest rate is 3.5 percent, what is the value of each bond today? Which bond is worth more? Why? (Hint: You can use a calculator, but the rule of 70 should make the calculation easy.) b. If the interest rate increases to 7 percent, what is the value of each bond? Which bond has a larger percentage change in value? c. Based on the example above, complete the two blanks in this sentence: "The value of a bond [rises/falls] when the interest rate increases, and bonds with a longer time to maturity are [more/less] sensitive to changes in the interest rate.arrow_forward
- How does an increase in interest rates affect business? Consumers?arrow_forwardYou decide to purchase a new home and need a $80,000 mortgage. You take out a loan from the bank that has an interest rate of 10%. What is the yearly payment to the bank to pay off the loan in 10 years? FP = $(Round your response to two decimal places.)arrow_forwardMany countries have policies that limit how much interest a moneylender can charge on a loan. Do you think these limits are a good idea? Who benefits from the laws and who loses? What are likely to be the long-term effects of such laws? Tips: For part 2, you may think about how a low interest rate would affect the poor and those who owe huge debts. For part 3, you may think about how it would affect the profitability of the banking sector and the supply of lending (will lenders be encouraged to lend more?), and what implications it may have for "credit rationing" (being credit constrained).arrow_forward
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