Reference no: EM132532767

Question 1: Assume personal income was $30 million last year. Personal outlays were $22 million and personal current taxes were $5 million.

a. What was the amount of disposable personal income last year?

b. What was the amount of personal saving last year?

c. Calculate personal saving as a percentage of disposable personal income.

Question 2: The components that comprise a nation's gross domestic product were identified and discussed in the chapter. Assume the following accounts and amounts were reported by a nation last year. Government purchases of goods and services were $5.5 billion; personal consumption expenditures were $42.5 billion; gross private domestic investment amounted to $20.5 billion; capital consumption allowances were $4 billion; personal savings were estimated at $2 billion; imports of goods and services amounted to $6.5 billion; and the exports of goods and services were $5 billion.

a. Determine the nation's gross domestic product. See combined GDP solutions for (a) and (b) under (b).

b. How would your answer change if the dollar amounts of imports and exports are reversed?

Question 3: A ten-year U.S. Treasury bond has a 3.50 percent interest rate, while a same maturity corporate bond has a 5.25 percent interest rate. Real interest rates and inflation rate expectations would be the same for the two bonds. If a default risk premium of 1.50 percentage points is estimated for the corporate bond, determine the liquidity premium for the corporate bond.

Question 4: A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten-year Treasury bond has an interest rate of 3.7 percent. If inflation is expected to average 1.5 percentage points over both the next ten years and thirty years, determine the maturity risk premium for the thirty-year bond over the ten-year bond.

Question 5:  Find the future value of $10,500 invested now after five years if the annual interest rate is 8 percent.

a. What would be the future value if the interest rate is a simple interest rate?

b. What would be the future value if the interest rate is a compound interest rate?