Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 26, 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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At the SEC [Securities and Exchange Commission], we enforce the laws that
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Use the excerpt from the SEC's Guide to Saving and Investing to answer the
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Explain different types of investments and savings accounts and how they help your
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8.
Chapter 26 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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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
- Arjay plans to sell a bond that matures in one year and has a principal value of $1,000. Can he expect to receive $1,000 in the bond market for the bond? Explain.arrow_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_forwardMichelle has received two exciting job offers from two different companies, Tech Corp and Future Inc. Tech Corp offers a Defined Benefit Pension Plan (DBPP), while Future Inc offers a Defined Contribution Pension Plan (DCPP). As an aspiring investment enthusiast, Michelle would like to have a say in how her retirement funds are invested. 1) Which company should Michelle choose if she wants to have the freedom to make her own investment decisions? 2) If Michelle prefers a guaranteed income after retirement, which plan would suit her best? 3) Which plan potentially exposes Michelle to higher investment risk?arrow_forward
- Consider 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_forwardEconomists assert that financial markets serve the function of efficiently allocating capital. What is meant by the function? Explain and include an example.arrow_forwardSuppose Charles would like to invest $7,000 of his savings. NOTE: the dropdown choice for first question is (debt ot equity), the dropdown choice for the second question is ( [an IOU or promise to pay from] OR a claim to partial ownership in), the dropdown choice for the third question is (charles and the other stockholders or the bondholders), the dropdown choice for the LAST one is higher or lower)arrow_forward
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