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Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the $100 coupon once per year.
a. If all three bonds are now priced to an 8% market rate, what are their prices?
b. If you expect their market rates to be 8% at the beginning of next year, what will their prices be then? If one of the above bonds were a municipal bond, what additional consideration would need to be made as part of the investment decision?
c. Recalculate your answer to (b) under the assumption that you expect the market rates on each bond to be 7% at the beginning of next year.
When the US. Treasury sells bonds, the money supply does not increase, while when the Central Bank sells bonds, the money supply contracts. Explain why?
If most businesses in an industry are earning a 13 percent rate of return on their assets, but your firm is earning 23 percent what is your rate of economic profit
Which of the following is least likely to be part of the opportunity cost of a college degree? An increase in the interest rate is expected to cause the optimal level of human capital investment for an individual to:
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Gas prices are high at $3.30 in the Year of 2008, compared the prices in 1979 of gas prices for $1.00. Are Nominal prices or the Real Prices higher today, then in the past? How do you know? show your work. Use the CPI in 1979 of 85 and in 2008 of 218..
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Blake eats two bags of potato chips each day. Blake's hourly wage increases from $9 to $15, and he decides to stop eating generic chips and instead eats a name brand potato chip. Use the midpoint method to calculate Blake's income elasticity of deman..
How would a gradual increase in the percentage of fathers who stay home to care for young children while their wives continue working.
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