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Transaction costs in economy

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1. A $1000 face-value coupon bond has a 10% coupon rate, a maturity of 4 years, and a price of $960.

a. Is the yield to maturity going to be above or below 10%, and why?

b. Calculate the present value of the bond when interest rate is 12%. Must the yield to maturity be above or below 12%, and why?

c. Calculate the present value of the bond when interest rate is 8%. Must the yield to maturity be above or below 8%, and why?

d. Calculate the yield to maturity for this bond at the current price.

How many ratios of exchange would an individual have to cope with in a barter economy with 276 different items available for exchange?

How many absolute prices would there be if one of the items available for exchange were used as a generally acceptable medium of exchange?

Explain how the use of money as a unit of account can help reduce transaction costs in this economy. 2.

Reference no: EM131589042

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