III. Label each of the following statements true, false, or uncertain. Explain your choice carefully. a. The present discounted value of a stream of returns can be calculated in real or nominal terms. b. The higher the one-year interest rate, the lower the present discounted value of a payment next year. c. Interest rates are normally expected to be constant over time.

III. Label each of the following statements true, false, or uncertain. Explain your choice carefully. a. The present discounted value of a stream of returns can be calculated in real or nominal terms. b. The higher the one-year interest rate, the lower the present discounted value of a payment next year. c. Interest rates are normally expected to be constant over time.

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter27: The Basic Tools Of Finance

Section: Chapter Questions

Problem 3PA

See similar textbooks

Similar questions

Suppose that you purchase a 2 year coupon bond at the time it is issued for $1100. The face value of the bond is $1000, with annual coupon payments of $80. a. What is the bond’s “coupon rate”? b. What is the bond’s “current yield”? c. What is the bond’s (nominal) “yield to maturity”? d. If you hold the bond for 1 year and sell it for $1035 (after collecting the first coupon payment), what is your “holding period rate of return”? Please answer all part otherwise Dounvote
What refers to the ratio of the interest payment to the principal for a given unit of time and usually expressed as a percentage of the principal? Select one: a. Rate of return b. Interest rate c. Yield 29 d. Return of investment
1. 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.
K A twenty year bond with a $1000 face value was issued with a yield to maturity of 4.5% and pays coupons semiannually. After ten years, the yield to maturity is still 4.5% and the clean price of the bond is $960.09. After three more months go by, what would you expect the dirty price to be? OA. $1,000.09 OB. $970.09 OC. $980.09 O D. Cannot be determined from information given.
11. The face value of a bond is $10,000, and the annual coupon payment is $850. What is the coupon rate?
Ali invests a certain amount of money today. The process of determining how much money that investment will produce in the future is called Select one: a. present value b. discounting 10 c. Compounding d. annuitizing the cash flow
6. You may borrow or lend at a 5% interest rate, which you expect to remain stable forever. Make a choice and explain your answer in each scenario below. a. You may receive a gift of $500 today or a gift of $540 next year. b. You may receive gift of $100 today or a four-year loan of $500 without interest. c. You may receive a $350 rebate on an $8000 car or one year of no-interest financing on the full price of the car. d. You have just won $1 million in the lottery. You may receive $500,000 now or the full million, paid out in 20 annual payments of $50,000. e. Alternatively, you may take $500,000 now or receive $25,000 per year for eternity (a contract that your heirs will inherit).
Suppose a 3 year bond with a 6% coupon rate that was purchased for $760 and had a promised yield of 8%. Suppose that interest rates increased and the price of the bond declined. Displeased, you sold the bond for 798.8 after having owned it for 1 year. What should be the realized yield ?
1. What is the present value of $500.00 to be paid in two years if the annual interest rate is 5%? $___ 2. The current interest rate on a 10-year treasury note (with face value = $100 and annual coupon rate = 2.625%) is 3.37%. The buyer of this note will receive $ ____ payment from the treasury every year before maturity while holding the bond.
Characteristics of the 30-year fixed rate mortgage to the borrow are the following: Check all that apply. A.Interest rate that adjusts if rates go down. B.Has a balloon payment due at the end of the loan. C.Monthly payment is the same every month for the life of the loan. D. Monthly payments adjust over time.. E.Interest rate that stays the same for the life of the loan.. F. Lower monthly payments because the full amount is spread out over a long period of time. G. Fully amortizing.
3. What is the yield to maturity of a 15% coupon bond selling for $900 that has a face value of $1,000?
6. Alex invested a certain amount to a business and promised to pay him back with 1.8 times his original investment. They agreed to have it compounded monthly within 9 years. What is the nominal rate of interest r in percent?