For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain! a bond of the U.S. government or a bond of an East European government a bond that repays the principal in year 2015 or a bond that repays the principal in year 2040 a bond from Coca-Cola or a bond from a software company you run in your garage a bond issued by the federal government or a bond issued by New York State
- For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain!
- a bond of the U.S. government or a bond of an East European government
- a bond that repays the principal in year 2015 or a bond that repays the principal in year 2040
- a bond from Coca-Cola or a bond from a software company you run in your garage
- a bond issued by the federal government or a bond issued by New York State
2. Many workers hold large amounts of stock issued by the firms at which they work. Why do you suppose companies encourage this behavior? Why might a person not want to hold stock in the company where he works?
3. Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000; C = 6,000; T = 1,500; G = 1,700. The economists also estimate that the investment function is: I =3,300 –100r where r is the country’s real interest rate, expressed as a percentage. Calculate private saving,
4. Suppose that Intel is considering building a new chip-making factory a. Assuming that Intel needs to borrow money in the bond market, why would an increase in interest rates affect Intel’s decision about whether to build the factory? b. If Intel has enough of its own funds to finance the new factory without borrowing, would an increase in interest rates still affect Intel’s decision about whether to build the factory? Explain!
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