30. A man loaned P15,000 pesos from a bank which offers a discount rate of 8% payable at once. How much did the man received upon the release of the loan?
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- Calculate the equity each of these people has in his or her home: Fred just bought a house for 200,000 by putting 10 as a down payment and borrowing the rest from the bank. Freda bought a house for 150,000 in cash, but if she were to sell it now, it would sell for 250,000. Frank bought a house for 100,000. He put 20 down and borrowed the rest from the bank. However, the value of the house has now increased to 160,000 and he has paid off 20,000 of the bank loan.What is the total amount of interest from a 5,000 loan after three years with a simple interest rate of 6?Suppose Ford Motor Company issues a five year bond with a face value of 5,000 that pays an annual coupon payment of $150. What is the interest rate Ford is paying on the borrowed funds? Suppose the market interest rate rises from 3 to 4 a year after Ford issues the bonds. Will the value of the bond increase or decrease?
- What are some ways that someone looking for a loan might reassure a bank that is faced with imperfect information about whether the borrower will repay the loan?Bond A pays $8,000 in 20 years. Bond B pays $8,000in 40 years. (To keep things simple, assume that theseare zero-coupon bonds, meaning the $8,000 is theonly payment the bondholder receives.)a. If the interest rate is 3.5 percent, what is the valueof each bond today? Which bond is worth more?Why? (Hint: You can use a calculator, but the ruleof 70 should make the calculation easy.)b. If the interest rate increases to 7 percent, what isthe value of each bond? Which bond has a largerpercentage change in value?c. Based on the example above, complete the twoblanks in this sentence: “The value of a bond[rises/falls] when the interest rate increases,and bonds with a longer time to maturity are[more/less] sensitive to changes in the interestrate.”ran Lee plans to set aside $2,600 a year for the next seven years, earning 3 percent. What would be the future value of this savings amount? Use Exhibit 1-B. (Round your discount factor to 3 decimal places and final answer to 2 decimal places.)
- The demand D (in billions of £) for a bond with coupon rate 5% and face value FV = 1000, andtwo years to maturity as a function of its price P is D = 4000 − 2P. The supply in (billions of£) as a function of the price of the bond is S = 2P + 400. b) Suppose that the yield to maturity of the bond is i = 0.05. What is the quantitydemanded/supplied at this interest rate? What happens to the demand/supply of the bond asthe interest rate increases? Explain why. c) What is the equilibrium interest rate?The demand D (in billions of £) for a bond with coupon rate 5% and face value FV = 1000, andtwo years to maturity as a function of its price P is D = 4000 − 2P. The supply in (billions of£) as a function of the price of the bond is S = 2P + 400. b) Suppose that the yield to maturity of the bond is i = 0.05. What is the quantitydemanded/supplied at this interest rate? What happens to the demand/supply of the bond asthe interest rate increases? Explain why. c) What is the equilibrium interest rate? d) Suppose that the bond trades at premium. Is there excess demand or supply? Explain.e) There is a business cycle expansion, so both supply and demand shifts. After the shift, thenew demand curve is given by: D = 4000 + X − 2P, whereas the new supply curve is S =2P + 200. For which values of X will the interest increase/decrease? Which values of X arein line with empirical data?6. An investor purchases a 30-year U.S. government bond for $840. The bond’s couponrate is 10 percent and, it still had twelve years remaining until maturity. If the investorholds the bond until it matures and collects the $1000 par value from the Treasuryand his marginal tax rate is 25 percent (we assume that the bond is taxable), what willbe his after-tax (effective) yield to maturity? Make sure to show your work.
- The following set of equations describe an economy:C= 15,000 + 0.75(Y – T) – 45,000rIp= 10,000 – 22,500rG= 8,200NX= 1,800T= 8,500Y*= 82,100Find PAE equation and what should be the interest rate to eliminate the outputgap.In a country Macroland, the government borrows at 5% for 1-year maturity. However, the Central Bank has announced interest rate hikes for the following years, so people expect that the next year the same 1-year bond will pay 7% and that the interest will rise again to 8% in the year after. Compute and draw the yields curve (for 1, 2 and 3 years bonds) of the government of Macroland, assuming that there is no risk of default and no inflation1. Will Stephanie have enough funds for her investment in stocks and bonds, when needed? What will be the surplus/shortfall, if any? 2. Given that Stephanie’s bank offers an interest rate of 6% per year, what additional amount should she have deposited as a fixed deposit in the bank so as to accumulate the amount needed for her investment in stocks and bonds when needed?
