Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 11.A, Problem 7P
(a)
To determine
Price of bond and the interest rate.
(b)
To determine
Price of bond and the time period.
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For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain!
a). a bond of the U.S. government or a bond of an East European government
b). a bond that repays the principal in year 2015 or a bond that repays the principal in year 2040
c). a bond from Coca-Cola or a bond from a software company you run in your garage
d). a bond issued by the federal government or a bond issued by New York State
Which of the following is TRUE for a coupon bond?
31
Select one:
a. The yield is less than the coupon rate when the bond price is below the par value
b. When the coupon bond is priced at its face value, the yield to maturity equals the coupon
rate
c. The yield to maturity is greater than the coupon rate when the bond price is above the par
value.
d. The price of a coupon bond and the yield to maturity are positively related.
If the price of a government bond (gilt) traded on the stock market rises above its nominal value, which of the following statement must be true?
1 -The bond's coupon falls below the yield
2 - The bond's coupon rises above the yield
3-the bond's yield rises above the coupon
4 - the bond's yield falls below the coupon
Chapter 11 Solutions
Principles of Economics (12th Edition)
Ch. 11.A - Prob. 1PCh. 11.A - Prob. 2PCh. 11.A - Prob. 3PCh. 11.A - Prob. 4PCh. 11.A - Prob. 5PCh. 11.A - Prob. 6PCh. 11.A - Prob. 7PCh. 11.A - Prob. 8PCh. 11.A - Prob. 9PCh. 11.A - Prob. 10P
Ch. 11.A - Prob. 11PCh. 11.A - Prob. 12PCh. 11 - Prob. 1.1PCh. 11 - Prob. 1.2PCh. 11 - Prob. 1.3PCh. 11 - Prob. 2.1PCh. 11 - Prob. 2.2PCh. 11 - Prob. 2.3PCh. 11 - Prob. 2.4PCh. 11 - Prob. 2.5PCh. 11 - Prob. 2.7PCh. 11 - Prob. 2.8PCh. 11 - Prob. 2.9PCh. 11 - Prob. 3.1PCh. 11 - Prob. 3.2PCh. 11 - Prob. 3.3PCh. 11 - Prob. 3.4PCh. 11 - Prob. 3.5PCh. 11 - Prob. 3.6P
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- Investment X offers to pay you $5,500 per year for nine years, whereas Investment Y offers to pay you $8,000 per year for five years. a. Calculate the present value for Investments X and Y if the discount rate is 5 percent. b. Calculate the present value for Investments X and Y if the discount rate is 15 percent.arrow_forwardFor 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, public saving,…arrow_forwardConsider a $1200 bond that makes $30 annual coupon payments. If the interest rate is 2 percent and the bond matures in two years, what is the bond's present value? Carefully follow all mathematical instructions. Round intermediate steps to four decimal places and your final answer to two decimal places.arrow_forward
- Which of the following is TRUE for a coupon bond? Select one: a. The yield to maturity is greater than the coupon rate when the bond price is above the par value. b. The price of a coupon bond and the yield to maturity are positively related. c. When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate d. The yield is less than the coupon rate when the bond price is below the par valuearrow_forwardIn the summer of 2010, Congress passed a far-reaching financial reform bill to attempt to prevent another financial crisis like the one that happened in 2008-2009. We will consider two scenarios related to this bill. 18. In the first scenario, suppose that by requiring firms to comply with strict regulations, the bill increases the cost of investment. Draw a graph showing the consequences of this scenario on the market for loanable funds. What is the result? 19. Now consider the second scenario: Suppose that by requiring firms to comply with strict regulations, the bill increases confidence that savers have with the financial system, making them more likely to save their money there. Draw a graph showing the consequences of this scenario on the market for loanable funds. In this scenario, which curve shifts, and what are the results?arrow_forwardwould bonds still be a good option for investment if interest rates are negative?arrow_forward
- (1) Suppose you just bought a treasury bill for $965 that matures in three months (91 days), and has a face value of $1,000. What is your bond’s current discount yield? What is your bond’s current investment yield? ANS: (2) The French Government runs a budget surplus to finance its expenditure. Use the loanable funds model to show what happens to the interest rate, investments, and the quantity of loanable funds. ANS: (3) Which of the following is money? An American Express traveler’s check Checking deposits at Washington Mutual bank. The check you have just written to pay for school fees. ANS:arrow_forwardJack’s Lock and Key are considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year, and have no effect after then. If the interest rate is 5%, should Jack’s remodel? Defend your answer by showing your work.arrow_forwardSolve it clearlyarrow_forward
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