Compute the two-year nominal interest rate (12) using the exact formula and the approximation formula for each set of assumptions listed in the following tables. The assumptions are in each table's first three columns: they give values for the current one-year interest rate (11), next year's expected one-year interest rate (t+1), and the term premium on a two-year bond (x). Enter your response for the approximate rate as calculated; for the exact rate, round your response to three decimal places. Term Premium Approx. 12t 0% 2% 3% Exact 12t %
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- How would the price of the bond be affected by changing the going market interest rate? (Hint: Conduct a sensitivity analysis of price to changes in the going market interest rate for the bond. Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate. That is an oversimplification, but assume it anyway for purposes of this problem.)Let the equilibrium condition for national income be ?(?) + ?(?) = ?(?) + ? (? ′ , ? ′ ,? ′ > 0; ? ′ + ? ′ > ? ′ ) Where S, Y, T, I and G stand for saving, national income, taxes, investment and government expenditure respectively. All derivatives are continuous a. Interpret the economic meaning of the derivatives ? ′ , ? ′&? ′ b. Check whether the conditions for the implicit function theorem are satisfied. If so, write the equilibrium identity c. Find ??̅ ?? and discuss its economic implicationsFor an IS/LM model of an economy with the following equations: C = 200 + 0.8Yd | = 220 - 25i = 240 TR = 150 T= .2Y L=.1Y- 3i M= 125 The equilibrium interest rate and output combination is O (30, 1250) O (9.2, 1526) . O (69.5, 2168.4) (3, 125)
- For an IS/LM model of an economy with the following equations: C = 200 + 0.8Yd | = 220 – 25i = 240 = 150 TR T= .2Y L= .1Y – 3i M. = 125 The equilibrium interest rate and output combination is (3, 125) (30, 1250) (9.2, 1526) (69.5, 2168.4)Given the information: Interest rate in US (Rh): Interest rate in UK (Rf): The current spot rate for GBP (SR₂): Suppose your lines of credit are USD 15,000,000 in the US and GBP 10,000,000 in UK. If your forecast tells you that the spot rate of GBP one year later (SR₁) will be $1.535, then your preferred investment strategy should earn a net profit of: OGBP 41,694 OGBP 200,000 USD 64,000 6% 4% $1.50 O USD 300,000When analyzing how borrowing and lending affect the consumer's budget constraint, we measure spending in the current time period on the horizontal axis and spending in the future time period on the vertical axis. Assume that the interest rate at which the consumer can lend and borrow is 10%, income in period 1 is $1000 and income in period 2 is $1200. The point of maximum current consumption can be expressed as 1000+ 1200/1.1. 1000(1.1) + 1200. 1000+ 1200 + .1 1000/1.1 + 1200/1.1 + 1.
- The formula for the is curve can be derived from the formula Y = [CO+MPC(Y-T)]+1+G. When the IS curve is derived, I and G are assumed constant and Y varies based on the interest rate r. Assuming that CO=50B, MPC = 80, T=200B, I = 120B-10B (r), and G = 250B, the derived IS curve is (A),Y=1,300B - 50B (r) B ) Y=1, 400B +40B (r) C) Y=1, 300B +50B (r) D) Y=1, 400B - 50B (r) Using the IS formula you calculated in the problem above, what is the value of Y if r = 10(10%) ? A) 1,000B B) 900B C) 800B D) 700B Using the IS formula that you derived above, what is the value of Y ifr = 12 (12%) ? A) 1,000B B) 900B C) 800B D) 700B Assume that the ,M,d money demand function is (=Y-50r, where is the interest rate. The money supply M is 2,000B and the price level P is 4. Use this information to derive the LM curve function/formula. The LM function/formula is A ) Y=650B + 50B (r) B) Y = 650B +40B (r) C) Y = 500B-60B (r) D) Y = 500B + 50B (r) D) 50. ၁ The formula for the IS curve can be derived from the…Consider a bond without an expiration date that makes a fixed interest payment of $210 per year. Complete the following table by calculating the interest rate on the bond at different sale prices. (Hint: The effective interest rate on a bond is a ratio of the interest payment to the sale price of the bond times 100.) Price of Bond Interest Rate (Dollars) (Percent) 1,200 1,000 750 600 Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. The line showing the relationship between bond prices and interest rates has a _____(POSITIVE/NEGATIVE) slope; in other words, there is _______(INVERSE / A DIRECT) relationship between bond prices and interest rates. NOTE- THIS QUESTION IS DIVIDED INTO SUBPARTS . PLEASE ANSWER…Consider the following hypothetical investment for the fund. Issue a one-month liability and purchase a $1,000, 15-year, 5% coupon Treasury bond. Assume that the one-month interest rate is currently 2% and that the 15-year interest rate is currently 5%. How much in liabilities would the fund have to issue to finance the purchase of the Treasury bond? At the end of one year the fund has received the coupon-interest payment on the bond and paid interest on its short-term liabilities. What is the net earnings for the fund for that year? What is the value of the bond investment at the end of the year (there are 14 years to maturity remaining on the bond) assuming that the long-term rate is still 5%? What is the net asset value (market value of assets minus liabilities) of the fund?
- Dell Computer makes its suppliers wait 37 days on average to be paid for their goods; however, Dell is paid by its customers immediately. Thus, Dell earns interest on this float, the money that it is implicitly borrowing. If Dell can earn an annual interest rate of 4%, what is this float worth to Dell per dollar spent on inputs?Suppose the U.S. economy was at trend and now benefits from a boom in Asia, which raises de by 0.015. All other demand parameters remain unchanged. In order to maintain Y₁ = 0, the Federal Reserve raises the real interest rate R by 0.6 percentage point. Based on this information you know that b =Assume that you are employed by the government of Tanzania in 1964, a new nation recently independent from Britain. The Tanzanian parliament has decided that it will spend 10 million shillings on schools, roads, and healthcare for the year. You estimate that the net taxes for the year are eight million shillings. The difference will be financed by selling 10-year government bonds at 12% interest per year. The interest on outstanding bonds must be added to government expenditure each year. Assume that additional taxes are added to finance this increase in government expenditure so the gap between government spending is always two million. If the school, road, and healthcare budget are unchanged, compute the value of the accumulated debt in 10 years.