Question 1.
a. What is the difference between interest rates and returns on a bond? Is the RET equal to the interest rate? Why or Why not?
b. What would be the rate of return on a coupon bond bought at face value of $1000 today( with a coupon rate of 15%) and sold for $1200 one year later ?
c. What is the method to calculate the rate of Capital Gain (g)? Is there a capital gain or loss in the above cae? How much?
Question 2.
Explain why you would be more or less willing to buy long-term Government bonds under the following scenarios: Use a demand and supply analysis for bonds, with a given initial equilibrium in the bonds market. ( Diagram necessary)
a.Trading in these bonds increases, making them easier to sell.
b.Relative risk of these bonds compared to other types falls
c.Suppose government has a surplus
Question 3.( Diagram nesscesary)
a. What is the distinction between Real and Nominal Interest rates?
b. Suppose we have an equilibrium in the bonds market with a given expected inflation (he). If inflation rate increases, What will happen to the demand and supply of bonds? Would you be able to say for sure (i.e. with certainty) what will happen to the price of bonds and what will be the quantity bought and sold? Why or why not?
Question 1.
a. What is the difference between interest rates and returns on a bond? Is the RET equal to the interest rate? Why or Why not?
b. What would be the rate of return on a coupon bond bought at face value of $1000 today( with a coupon rate of 15%) and sold for $1200 one year later ?
c. What is the method to calculate the rate of Capital Gain (g)? Is there a capital gain or loss in the above cae? How much?
Question 2.
Explain why you would be more or less willing to buy long-term Government bonds under the following scenarios: Use a demand and supply analysis for bonds, with a given initial equilibrium in the bonds market. ( Diagram necessary)
a.Trading in these bonds increases, making them easier to sell.
b.Relative risk of these bonds compared to other types falls
c.Suppose government has a surplus
Question 3.( Diagram nesscesary)
a. What is the distinction between Real and Nominal Interest rates?
b. Suppose we have an equilibrium in the bonds market with a given expected inflation (he). If inflation rate increases, What will happen to the demand and supply of bonds? Would you be able to say for sure (i.e. with certainty) what will happen to the price of bonds and what will be the quantity bought and sold? Why or why not?
Related textbook solutions
Related questions
6. If there is a shortage of loanable funds, then
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a. |
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. |
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b. |
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. |
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c. |
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. |
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d. |
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium. |
Ā
7. We associate the term debt finance with
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a. |
the bond market and we associate the term equity finance with the stock market. |
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b. |
the stock market and we associate the term equity finance with the bond market. |
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c. |
financial intermediaries and we associate the term equity finance with financial markets. |
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d. |
financial markets and we associate the term equity finance with financial intermediaries. |
8. If the demand for loanable funds shifts to the right, then the equilibrium interest rate
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a. |
and the quantity of loanable funds rises. |
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b. |
and the quantity of loanable funds falls. |
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c. |
rises and the quantity of loanable funds falls. |
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d. |
falls and the quantity of loanable funds rises. |
Ā
9. Long-term bonds are
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a. |
riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. |
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b. |
riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. |
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c. |
less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. |
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d. |
less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. |
10. Compared to bondholders, stockholders
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a. |
face higher risk and have the potential for higher returns. |
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b. |
face higher risk but receive a fixed payment. |
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c. |
face lower risk and have the potential for higher returns. |
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d. |
face lower risk but receive a fixed payment. |
11. The old adage, 'don't put all your eggs in one basket',ĀĀ is very similar to a modern bit of advice concerning financial matters:
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a. |
Buy low-risk bonds. |
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b. |
Use a medium of exchange. |
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c. |
Diversify. |
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d. |
Intermediate. |
12. A budget surplus is created if
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a. |
the government sells more bonds than it buys back. |
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b. |
the government spends more than it receives in tax revenue. |
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c. |
private saving is greater than zero. |
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d. |
None of the above is correct. |
