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explains interest rate and its determinants. Please explain is 3 paragraph
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- 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?Imagine that a local water company issued 10,000 ten-year bond at an interest rate of 6. You are thinking about buying this bond one year before the end of the ten years, but interest rates are now 9. Given the change in interest rates, would you expect to pay more or less than 10,000 for the bond? Calculate what you would actually be willing to pay for this bond.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.
- 5. If you want an investment to double in3 years, what interest rate must it earn? (Hint: Solve for the interest rate)What is the relationship; remember how economist talk about relationships, between the level of investment and the interest rate? Which is the independent variable? What is the most intuitive way for you to remember this?explain each factors of interest rate
- explain using a two period indifference curve how an individual would respond to an increase in interest rate by increasing or decreasing saving, explain using graphsJobu is thinking about borrowing $10,000 from Mike. He promises Mike cash flows (a stream of payments) of $5000 for the next three years. If Jobu’s cost of capital is 15%, what is the Net Present Value of the investment for Mike? Show your calculation clearly.what is the 4 factor that affects the level of interest rate? and how does each one work?
