PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 11, Problem 3P
(a)
To determine
Determine the value of assets when the interest rates on newly issued government bonds rise.
(b)
To determine
Determine the value of assets when the inflation rate lowers.
(c)
To determine
Determine the value of assets when investors are concerned about the market risk.
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Students have asked these similar questions
Suppose that you also take out a $1,000 loan at the Cavalier Credit Union. The loan agreement stipulates that you must pay it back with 4% interest in one year, and again, the inflation rate is expected to be 2%.
If the inflation rate turns out to be 3% rather than 2%, who will be hurt? Why?
If the inflation rate turns out to be 3% rather than 2%, who will be helped? Why?
You are considering purchasing a 10-year bond and follow the theory of rational expectations. If you have justread the annual report of the central bank in your country that states interest rates are higher than expected,will you buy the bond today or in the next month?
Suppose that the market interest rate in an economy is 9 percent and a bond promises to pay $735 after one year, $858 two years from now, and finally $1410 three years from now.
The equilibrium market price of this bond
$2485.25. (Round your response to two decimal places.)
If this bond were to sell for $1988 in the market, then it is profitable
to buy
this bond from investors' perspectives.
not to buy
Chapter 11 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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