QT-W12_InterestRates&Investment

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University of Nairobi *

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MISC

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Economics

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Nov 24, 2024

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docx

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Uploaded by BrigadierClover12969

Question Template: Interest Rates and Investment Before meeting with your group, please answer the following and prepare to discuss them with your group: 1. Dr. Smith mentions three different scenarios at the end of his article. In the first, the Fed will “jack up interest rates,” in the third, the Fed “lowers interest rates.” Describe the Fed policies that would lead to interest rate rising and the policies that would lead to interest rates falling. When interest rates rise, bad economic news will reinforce the decline in stock values, while good economic news will cushion the drop, perhaps even propelling stock prices upward at the same time that bond prices are falling. When interest rates decline, good economic news will reinforce rising stock values while a weak economy will restrain stock values. 2. What does Dr. Smith say about the impact of the interaction between the state of the economy in general and the interest rates on the stock market? How is this interaction more important than just looking at interest rates in isolation? A rise in interest rates that brings an economic recession will cause bond and stock prices to fall together; a decline in interest rates that brings an economic boom will cause bond and stock prices to rise together. In these circumstances, bond and stock prices are positively correlated . During your group meeting, please discuss and answer the following: 3. Suppose you are running a business that is considering a capital purchase in the sum of six million dollars. The Federal Open Market Committee is meeting next week and word on the street is that they are planning on buying bonds on the open market. Should you make the capital purchase now or wait until after the Fed meeting? Does your answer depend on whether you are going to have to borrow money to finance your purchase or if your purchase can be made with cash on hand? Why or why not?

I will purchase with cash on hand because as time moves on the interest rate keeps on rising and if I borrow, I will rather end up paying more interest rate. 4. What are the names of the other students in your group that attended your group meeting? Who was absent? Boahene Rickson and Daniel Koley Dickson 5. How many minutes did your group meeting last? Was there good discussion? 15mins and the meeting was awesome After the meeting, please answer the following (or put N/A if it is not applicable): 6. Did you attend your group meeting (Yes or No)? Yes 7. If your answers to the before-meeting questions (questions 1 and 2) changed as a result of the group discussion, describe in what way they changed.

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