Essay on Eco Test

The value of a bond is found as the present value of interest payments plus

The magnitude of this opportunity cost depends on the difference between the rate of return that could be earned on these funds if they were invested in other assets and the rate of return that the checking account pays. For different investors with different attitudes towards risk, the alternative investments undertaken with their $2000 and the rates of return expected on those investments might differ. The opportunity cost of this minimum balance requirement for very risk averse investors is not as great as for those with greater risk tolerance, since very low risk investments have a lower rate of return than assets exposed to market risk.

a) Assuming the opportunity interest rate is 6%, what is the present value of the second alternative?

14. Global Enterprises has just signed a $3 million contract. The contract calls for a payment of $.5 million today, $.9 million one year from today, and $1.6 million two years from today. What is this contract really worth if Global Enterprises can earn 12 percent on its money?

a) In the first set of calculations, the staff used a discount rate of 20%, a five-year time horizon, and ignored taxes and terminal value. What is the relative attractiveness of these three alternatives?

10. An investment of $1,000 today will grow to $1,100 in one year. What is the continuously compounded rate of return?

1.00 point A bond with a 7-year duration is worth $1,073, and its yield to maturity is 7.3%. If the yield to maturity falls to 7.21%, you would predict that the new value of the bond will be approximately _________.

deposit to satisfy the Minimum Balance Requirement. Once the savings is opened and funded, the

The bonds have 20 years to maturity, pay interest at 9.3%, have a par value of $1,000 and are currently selling for $890.

b. Generate a graph or table showing how the bond’s present value changes for semi-annually compounded interest rates between 1% and 15%.

5. What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position?

2. The discount rate for this bond would be 0.70%. I started with an appropriate discount rate to derive my bond purchase price, since I would not purchase a bond without finding out ahead of time what a good price should be.

Money Market Mutual Funds are investments whose purpose is to provide investors with a safe place to invest. They are

M2 includes all of the components of M1 and additional assets such as small-denomination time deposits, savings deposits and money market deposit accounts, and money market mutual funds shares (Mishkin, 2016).

First we need to get the present value of the annuity for the 1,500 semiannual PMTs at year 14