Reference no: EM132558996
1) Suppose that a discount bond pays out $500 in exactly 2 years and has a price today of $453.51. Then the yield on this bond is?
2) A household has $5 in wealth and must allocate it between consumption C and savings S. The benefit of C is given by 2.9C0.5. At an interest rate of 23%, the household should optimally consume ___ and save ___.
3) A firm faces a Revenue function of 3.6K0.5, where K is capital invested. If this firm faces an interest rate of 45%, then the firm will optimally demand ____ units of capital and the resulting total revenue is ____.
4) Consider the same household and firm as given in questions 2 and 3 above, but assume they both face an interest rate of 0%. Determine whether the financial market is in equilibrium or not, and if not whether there is excess supply of funds, or excess demand.
5) Find the present value of a $5,600 cash flow that occurs three years from today, assuming the interest rate is 10%.
6) An investor purchases a discount bond for $5,000 and the bond has a future payout of $X in 5 years. If the interest rate is 10%, then what is the payout amount, X?
7) Suppose that there is a large increase in profitable business opportunities for firms. In this case we would expect that the _____ curve for bonds will shift to the _____ and the equilibrium price will _____.
8) In the market for bonds, buyers' wealth levels increase and government deficit spending decreases. Then the equilibrium yield for bonds will?
9) Suppose that liquidity of corporate bonds improves a little bit, relative to the liquidity of US Treasury bonds. In this case, the equilibrium price of corporate bonds should ____ and the equilibrium price of US Treasury bonds should _____.
10) If the risk of corporate bonds rises relative US Treasury bonds then we would expect that the yield for US Treasury bonds will _____ and the yield for corporate bonds will _____.