Principles of Macroeconomics, Loose-Leaf Version
8th Edition
ISBN: 9781337096881
Author: Mankiw, N. Gregory
Publisher: South-Western College Pub
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Question
Chapter 13, Problem 1PA
Subpart (a):
To determine
The interest rate of different bonds.
Subpart (b):
To determine
The interest rate of different bonds.
Subpart (c):
To determine
The interest rate of different bonds.
Subpart (d):
To determine
The interest rate of different bonds.
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How to find the effective interest rate of a bond?
Fill in the blank with correct words and explain it in 2-3 sentences each
Consider that you were given a US savings bond that will pay $100 when it matures in ten years. What happens if the interest rate rises to the present value of this bond payment?Why happens if the interest rate rises to the present value of this bond payment?
A. Increases in present value B. The current value is unaffected. C. A decrease in present value
Chapter 13 Solutions
Principles of Macroeconomics, Loose-Leaf Version
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Similar questions
- Which of the following bonds pays only the principal amount to the bondholders at the maturity. a. Zero coupon bond b. Fixed rate bond c. Coupon bond d. Floating rate bondarrow_forwardmany people think that the interest rate on a bond tells them all they need to know about how well off they are as a result of owning it. Explain the statement.arrow_forwardBond A pays $8,000 in 20 years. Bond B pays $8,000 in 40 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.) a. If the interest rate is 3.5 percent, what is the value of each bond today? Which bond is worth more? Why? (Hint: You can use a calculator, but the rule of 70 should make the calculation easy.) b. If the interest rate increases to 7 percent, what is the value of each bond? Which bond has a larger percentage change in value? c. Based on the example above, complete the two blanks in this sentence: "The value of a bond [rises/falls] when the interest rate increases, and bonds with a longer time to maturity are [more/less] sensitive to changes in the interest rate.arrow_forward
- The table below shows Demand and Supply for loanable fund at given time. Real interest rate Quantity of loanable fund demanded (billion $) Quantity of loanable fund supplied (billion $) 0.01 1000 400 0.02 950 450 0.03 900 500 0.04 850 550 0.05 800 600 0.06 750 650 0.07 700 700 0.08 650 750 0.09 600 800 0.10 550 850 0.11 500 900 0.12 450 950 0.13 400 1000 0.14 350 1050 0.15 300 1100 Instructions: Using excel, find the equilibrium real interest rate and quantity of loanable fund. show the equilibrium on a graph. If this country experiences a recession business cycle phase that decreases the demand for loanable fund by $200 billion. Find the new equilibrium real interest rate and quantity of loanable fund. Show the shift on the graph. list Two factors that shift SLF rightward and two factors that shift DLF rightward What is the meaning of crowding out?…arrow_forwardWhat causes the yield on a discount bond to exceed the coupon rate on a bond?arrow_forwardcan you solve it with formulas?please make your text readable.arrow_forward
- Suppose that interest rates are 6 percent in the economy and a safe bond promises to pay $3 per year in interest forever. What do you think the price of the bond will be? Why? Suppose that the economy, interest rates suddenly fall to 3 percent. What will happen to the price of the bond that pays $3 per year?arrow_forward1a. What happens in the loanable funds market when legislation passes that gives tax credits to investors?arrow_forwardYou own a 6%bond and want to sell it in a yearl Di you hope that interest rates rise or fall? Explain in detailarrow_forward
- For each of the following pairs, which bond wouldyou expect to pay a higher interest rate? Explain.a. a bond of the U.S. government or a bond of anEastern European governmentb. a bond that repays the principal in year 2020 or abond that repays the principal in year 2040c. a bond from Coca-Cola or a bond from a softwarecompany you run in your garaged. a bond issued by the federal government or abond issued by New York Statearrow_forwardFrom a firm’s point of view, how is a bond similar to a bank loan? How are they different?arrow_forwardIn October 1987 stock prices fell 22 percent in one day and bonds rate fell also. Use the loanable funds theory to explain what happen.arrow_forward
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