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Assume that the pure expectations theory for the term structure of interest rates holds, no liquidity or maturity premium exists, and the bonds are equally risky.
One year T-bill rates over the next 4 years are expected to be 3%, 4%, 5%, & 5.5%. If 4-year T-bonds are yielding 4.5%, what is the liquidity premium on this bond?
1-year T-bill rates are expected to steadily increase by 150 basis points per year over the next 6 years. Determine the required interest rate on a 3-year T-bond and a 6-year T-bond if the current
Little Monsters Inc. borrowed $1,000,000 for two years from Northern Bank Inc. at an 11.5% interest rate. The current risk-free rate is 2% and Little Monsters’s financial condition warrants a de
The one-year interest rate over the next 10 years will be 3%, 4.5%, 6%, 7.5%, 9%, 10.5%, 13%, 14.5%, 16%, 17.5%. Using the pure expectations theory
Debt issued by Southeastern Corporation currently yields 12%. A municipal bond of equal risk currently yields 8%. At what marginal tax rate would an investor be indifferent between these two bonds?
Consider the decision to purchase either a 5-year corporate bond or a 5-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 11.5%.
What is the yield on a $1,000,000 municipal bond with a coupon rate of 8%, paying interest annually, versus the yield of a $1,000,000 corporate bond with a coupon rate of 10% paying interest annually?
Where r is the interest rate (assumed constant) and there are no storage costs. For the purposes of this problem, assume that a futures contract is the same as a forward contract.
Compare and interpret the four periods regarding the deficit spending. Focus on the changes in the percentages during each period and during the specific periods above, explain the variations in the
I owned both of the two Jerry Garcia autographed lithographs in existence. I sold one on eBay for a high price. But when I sold the second one, the price dropped by 80%
A plot of land costing $200,000 was acquired on January 1, 2001. The price level was 120 on that date. One-quarter of the land was sold on December 31, 2001, for $60,000 when the general price level w
A firm has a net monetary liability balance of $10,000 on January 1, 2001. During the first third of the year, the balance decreased to $7,500. During the second third of the year, the balance increas
The CPI for Zippa Republic was 111.9 in December 2007, 114.6 in December 2008, and 116.2 in December 2009.What do these numbers tell you about the price level in these three years?
A lottery claims its grand prize is $10 million, payable over 20 years at $500,000 per year. If the first payment is made immediately, what is this grand prize really worth? Use a discount rate of 6%.
What are the shortcomings of GDP deflator and CPI as measures of inflation? What are the effects of inaccuracy in measurement?
Tina Mier must pay a $2,000 furniture bill. A finance company will loan Tina $2,000 for 8 months at a 9% discount rate. The finance company told Tina that if she wants to receive exactly $2,000, she m
Explain: “Unemployment can be caused by a decrease of aggregate demand or a decrease of aggregate supply.” In each case, specify the price-level outcomes.
Describe the role of Banking and Financial Intermediaries in the economy and how banks create money through lending, as well as the Deposit Expansion Multiplier.
Let's consider the effects of inflation in an economy composed of only two people: Bob, a bean farmer, and Rita, a rice farmer. Bob and Rita always consume equal amounts of rice and beans.
You have recently seen a credit card advertisement stating that the annual percentage rate is 12 percent. If the credit card requires monthly payments, what is the effective annual rate of interest on
What operational and financial measures can a MNC take in order to minimize the political risk associated with a foreign investment project?
Two years ago, Rone issued a $25 million (U.S.$), five-year floating rate note (FRN). The FRN pays an annual coupon equal to one-year LIBOR plus 75 basis points. The FRN is non-callable and will be re
A corporation enters into a five-year interest rate swap with a swap bank in which it agrees to pay the swap bank a fixed rate of 9.75 percent annually on a notional amount of €15,000,000 and rec
Determine the QSD and set up a floating-for-floating rate swap where the swap bank receives .125 percent and the two counterparties share the remaining savings equally.