EBK ESSENTIALS OF ECONOMICS
7th Edition
ISBN: 8220102452107
Author: Mankiw
Publisher: CENGAGE L
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Chapter 18, Problem 1QCMC
To determine
The difference between the Stock and the Bond.
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Erin buys a bond that pays no coupon payments for $160. When the bond matures, she receives $200.
Erin earned an interest rate of ____________ percent on this bond.
(Enter your answer "as a percent, but without the percentage sign." If you think Erin earned 99.99 percent interest, enter only 99.99 in the blank.)
"Knowing how to secure your financial well-being is one of the most important things
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8.
Chapter 18 Solutions
EBK ESSENTIALS OF ECONOMICS
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- Solve it clearlyarrow_forwardPlease do your own work, don't copy from the internet Q2) 2, You invest $3,000 for three years at 12 percent. a. What is the value of your investment after one year? Multiply $3,000 × 1.12. b. What is the value of your investment after two years? Multiply your answer to part a by 1.12. c. What is the value of your investment after three years? Multiply your answer to part b by 1.12. This gives your final answer. Combine these three steps by using the formula to find the future value of $3,000 in 3 years at 12 percent interest.arrow_forward1. Assuming that the current interest rate is 3 percent, compute the present value (or price) of a five-year, 5 percent coupon bond with a face value of $1,000. What happens to the present value when the interest rate goes to 4 percent? Compute the new present value.arrow_forward
- Please help. Question in imagearrow_forwardConsider 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 valuearrow_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
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