13 Using the demand and supply curves for bonds, explain the effect of the following on the interest rates. a. A business cycle contraction b. Low inflationary expectation
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13
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a. A business cycle contraction
b. Low inflationary expectation
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- A mortgage 105m is a loan that a person makes to purchase a house. Table 19.11 provides a list of the mortgage interest rate for several different years and the rate of inflation for each of those years. In which years would it have been better to be a person borrowing money from a bank to buy a home? In which years would it have been better to be a bank lending money?What are I-bonds? Also explain inflation-adjusted interest rate.QUESTION 4 The Yield Curve for a loan relates the interest rate of the loan O a. To the value of future payments To the taxes of the loan Ob. To the fiscal policy C. None of the above d.
- 2. What effect a large federal budget deficit have on interest rates? Price B$ RD T Q. of Bonds 3. The president of the U.S. announces in a press conference that he will fight the higher inflation rate with a new antiinflation program. Predict what will happen to interest rates if the public believes him.Question 48 When the inflation rate is expected to decrease, the demand for bonds everything else held constant. while the supply curve shifts tb the falls: right rises, left O falls; left rises; right * Previous Nex EPIC15) The nominal required return on XYZ stock is 14%. The nominal risk-free rate of return is 4% and the real risk-free rate of return is 2%. How much are investors requiring as compenssation for risk? What is the inflation premium?
- The following graph shows the supply and demand curves in the market for loanable funds when actual inflation and expected inflation are zero, Suppose the expected inflation rate increases to 1%. Adjust the following graph to show the effect of this increase in the expected inflation rate. INTEREST RATE 9 200 300 QUANTITY OF LOANABLE FUNDS 100 400 Du 21. What is the relationship between the time value of money and inflation? 2. Compare simple interest to compound interest. 3. What are the advantages and disadvantages of a fixed principal, fixed interest loan? 4. What is the purpose of a bridge loan? 5. Distinguish between bank discount and simple interest.6. Differentiate between a stated rate of interest and an effective rate of interest. 7. What is the significance of finding the internal rate of return (IRR)? 8. Jill Kramer borrowed $25,000 to pay for a startup business. Jill must repay the loan at the end of five months in one payment with a 6 percent simple interest rate.What is the total amount that Jill must repay in five months?How much interest does Jill repay?9. Joe Jones went to his bank to find out how long it will take for $1,000 to amount to $1,350 at 9 percent simple interest. Solve Joe's problem.Draw a cash flow diagram for easy understanding. a. The SK debt as of today amounts to 12 trillion. These balloons with an interest rate of 0.16 % yearly. Suppose the republic requires every earning individual to pay the debt by 2030, how much each of us would need to pay monthly (annual payment amortized in 12 equal payments), assuming that inflation is 3%, the interest rate is 5.6% compounded daily, and we will start the payment by the end of 2022? South Korea is estimated to have 110 million people, with a workforce of around 20%. b. In the year 2020, the stock market fell because of COVID-19. You started investing from the year 2003, with an initial capital of P50,000. During this year, the bank's offer stated "Earn 3.7% interest rate, compounded quarterly for 6 years!" After 6 years, P5,000 was liquidated from the accumulated amount due to placement fees, etc. The new lump sum was further increased with the new interest rate offered by the bank and was planned to be the interest…
- Question 14 A The rate of return on a bond is the O Federal funds rate. 2, 5. Discount rate. O Yield. OAnnual interest payment.A.The inflation premium, when the real interest rate is 2% and the risk-free rate and risk premium are 5% and 3% respectively, is * 10% 8% 5% 3% B. Factors that influence the equilibrium interest rate are * Risk Liquidity preference Inflation All of the above C. A bond that has a Par value greater than its price is called * Discount bond Premium bond Par value bond All of the above D. Because equity holders are the last to receive any distributions, they expect greater returns to compensate them for the additional risk they bear. * True False E. Interest rate is the compensation paid by the lender of funds to the borrower. * True False F. Bonds issued by a corporation are * equity instruments long term debt instruments G. Debt holders claim on income and assets are * Senior to equity holders Subordinate to equity holders None of the above H. Funds provided by the firm’s owners (investors or stockholders) is called * Equity financing Debt financing Borrowed…when the inflation rate is expected to increase, the real cost of borrowing ______ at any given interest rate; the supply of bonds _____ and the supply curve shifts to the _____. is either rise or decline increase or decrease left or right
