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Week 3
1. Suppose that the nominal interest rate for the coming year is 9% and inflation is expected to be 5%. Compute the real interest rate for this time period. If (nominal) interest payments are taxed at a rate of 30%, what is the after-tax real interest rate?
2. Price a bond that matures in two years with face value of $1000 and coupon rate of 7% if the real interest rate is 3% and inflation is expected to be 2% for the first year of the bond's life and 3% for the second year of the bond's life.
3. Suppose you wish to price a consol bond, a bond with no maturity date. The bond pays $120 interest to the holder at the end of the first year, then $100 in each year of the bond's (infinite) life after that. If the interest rate is expected to be 11% for the first year, then 10% thereafter, what is the price of this bond?
4. Suppose you work at a bank and grant a simple loan for $100 000 that requires payment of $200 000 in four years' time. What is the yield to maturity on this loan?
5. You own a discount bond with a face value of $1000 and a current market price of $875. The bond matures in exactly one year. Calculate its yield to maturity and yield on a discount basis. Is the yield on a discount basis higher or lower than the yield to maturity? What are the sources of this understatement or overstatement?
Explain how much will your industry's total revenues (revenues from both products) change if you increase the price of good X by 1 percent.
Compute HHI for both industries. 3. Which industry is more concentrated according to 4-firm concentration ratio? 4. Which industry is more concentrated according to HHI? 5. Which of these measures (HHI and four-firm concentration ratio) can be a..
Assume that there are a large number of identical firms in a competitive industry, each with the cost function
What is the implication for the expected value and standard deviation of the returns on your portfolio if you invest in N (instead of only 3) of these assets and N becomes very large?
Elasticity of GDP per worker with respect to capital per worker = 0.25 Capital per worker grows at a rate of 4% per year. Technology advances at a rate of 5% per year.
In a certain year the aggregate value demanded at the existing price level consists of $100 billion of use, $40 billion of investment, $10 billion of net exports, and $20 billion of government buy.
Two articles Fed Official Expects Growth also Are Inflation Expectations Rising from the Ashes. Illustrate what exactly is the Federal Reserve.
Your company invests funds in Greece. The company claims that the investment will grow to 10 times the original investment over the next 20 years. The company allows you to invest $200 per month for the next 20 years in this activity. If, in fact..
Elucidate how the circular flow diagram also explain the interaction of households, government, and business.
A. What is price discrimination Why do firms engage in price discrimination B. What conditions are necessary in order to engage in price discrimination C. What is the relationship between price discrimination and price elasticity of demand
Is there a good or service you purchase currently that is sold in something close to a perfectly competitive market?
Suppose the stock of capital and the workforce are both increasing at 3 percent annually in the country of Wholand. At the same time, real output is growing at 6 percent. How is that possible in the short run and in the long run?
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