1. A security promises a future cash flow of exactly$4,200 in 5 years and $1,001 in 6 years. If theinterest rate is 5%, then what is the present valueof this security?2.There are decreasing opportunities forbusinesses to make profitable investments. In themarket for bonds we expect that the equilibriumprice willand the equilibrium interest ratewill

The interactions of buyers (demand) and sellers (supply) determine the price of a good or service.…

Answered: 2.There are decreasing opportunities…

2.There are decreasing opportunities for pusinesses to make profitable investments. In the market for bonds we expect that the equilibrium price will and the equilibrium interest rate will

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Analyse three factors That Cheapo Air would need to consider in setting a price for their business customers 2. Analyse the possible sources of finance available to Cheapo Air for capital expenditure 3. Analyse three factors that Cheapo Air would need to consider when deciding which finance strategy to use
O If the market interest rate (i) increases today, the Price of a Bond (P) today will decline. The following are correct statements about the impact of Market Interest Rate (i*) on value and return of a typical Coupon Bond, EXCEPT: The YTM of a Bond and the Market Interest Rate (i*) are the same value, even in the Short Term. O For a long term bond, if the Market Interest rate (i*) is expected to increase, the current Price of such Bond will Decline. For a two period Bond, if the Market Interest rate (i*) is expected to increase in the next period, the Expected Total Return (RET) on such bond will decline. Long Term Bonds are considered more risky than Short Term bonds, in part due to the risk associated to changes in future interest rates.
1. During the second quarter of 2010 rumors about the health of the Greek economy created significant fluctuations in stock prices all over the world. Explain the effects of changes in stock prices on investment levels according to Tobin’s q theory. 2. A relatively recent trend in most developed countries, including the United States, is the creation of single person households. Discuss the short- and long-run consequences of this trend in housing prices and residential investment.
1. Assume that the real interest rate is 7%. The Present Discounted Value (PDV) of a financial investment with a $5,000 payoff 3 years from today is $Blank 1. (Do NOT enter the '$' in your answer; round your final answer to the closest cent. Do NOT round any calculation except for the final answer.)
The Atlantic Investment Tax Credit is a 10% tax credit available to businesses that make specific investments in the Atlantic region and the Gaspe Peninsula. The graph shows the market for loanable funds. Show the impact of this tax credit by moving the proper curve appropriately in the graph. The new equilibrium interest rate is The quantity of loanable funds is $ ક billion Which statement accurately describes the impact of the Atlantic Investment Tax Credit? Interest rate (%) 10 9 8 7 6 5 st 3 2 1 0 0 5 10 15 20 25 30 35 Quantity of loanable funds (in billions) 40 Supply Demand 45 50
3. Discuss any three factors that determine Interest Rates?
Interest 6% lonable fund is 4trillion. Suppose there was a change in the tax laws to encourage savers to save more and as a result, assume the equilibrium interest rate falls by 2 % point. By how much the equilibrium loanable funds saved and invested would rise or fall?
6. An investor purchases a 30-year U.S. government bond for $840. The bond’s couponrate is 10 percent and, it still had twelve years remaining until maturity. If the investorholds the bond until it matures and collects the $1000 par value from the Treasuryand his marginal tax rate is 25 percent (we assume that the bond is taxable), what willbe his after-tax (effective) yield to maturity? Make sure to show your work.
3. Present value can be used to determine the fair price -or value - of a bond. In the examples that follow, assume you are working with zero-coupon bond and that there are no transaction costs. A zero-coupon bond is one that pays all interest and the principal when the bond matures. For example, suppose somebody offers to sell you a bond that will pay a future value of $225 – interest included - when it matures in two years. If the current market interest rate is 3%, then what would be a fair price for you to pay for this bond? a. The value of a bond changes whenever the current market interest rates change. For example, suppose you bought a bond in 2015 that promises to pay you 5% annual interest until it matures in 2020. The value of your bond (i.e., the price that you can sell it for if you choose to sell it before maturity) will change if the market interest rate changes. To understand why, work through the following examples. b. Suppose you purchased a bond for $181.82 that will…
Question 19 8 Real interest rate (percent per year) a 10 A 2 0 150 300 450 600 750 900 Loanable funds (billions of 2012 dollars) less than $450 billion. In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 percent and the expected profit falls, the amount of loanable funds demanded will be between $450 billion and $600 billion. DLF greater than $600 billion. $450 billion. 2 pts