What is likely to happen to the average CAP rate in the market under each of the following conditions. Briefly explain. a. Rising interest rate environment. b. Growing perception that real estate is becoming riskier than previously viewed. c. Expectations that future inflation will increase
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What is likely to happen to the average CAP rate in the market under each of the following conditions. Briefly explain. a. Rising interest rate environment. b. Growing perception that real estate is becoming riskier than previously viewed. c. Expectations that future inflation will increase
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- At the end of September, a barrel of light crude oil sold for almost $70 compared to a price near $30 a barrel in January 9f 2004. To answer the following questions,assume bind traders expect inflation to rise from 3% in 2005 to 5% in both 2006 and 2007. Also traders expect the American economy to enter a recession in 2007. Assume the prior to the recent run up oil prices, bond traders had expected inflation to remain stable in 2006 and 2007 at 3%. Using a model of supply and demand for one year T-Bills, illustrate and explain the impact of a recession ( a business cycle contraction) if bond traders expect that this recession will occur in 2007,what do you expect to happen to yields on one year T- Bills in 2007?Assume Canadian consumers expect future income to rise. Starting from the natural rate of output, explain with a graph how this expectation will affect the interest rate, inflation rate and real GDP in the short-run. Also show and explain how the bank of Canada can help take the inflation rate back to its original target?If the U.S. Fed announces to raise the interest rate (i.e. discount rate) by 1% by the end of 2021, what do you expect the impact on the current U.S. inflation? Please explain briefly in the language of macroeconomics.
- Which of the following events raises the nominal interest rate, other things remaining the same? A. The increased use of mobile wallets B. The Fed makes an open market purchase C. An increase in the monetary base D. A rise in the price level Thank youSuppose the current inflation rate is a constant 7% and the central bank implements a disinflation policy to reduce it to its target rate of 3%. To achieve this objective the central bank, by increasing its cash rate, raise the nominal interest rate from its current 9% to 14%. In the long run, at which the central bank achieves its inflation target, what will be the nominal rate of interest, the real rate of interest and the inflation rate?If inflation rises from 10 to 14 percent, explain what happens to real and nominal interest rates according to the Fisher effect?
- A Wall Street Journal offered the following opinion of the bond market in September 2012, when inflation rate was about 2%: Ac€A?Someone buying long-term bonds yielding 1.5% or 2% and then seeing consumer price inflation of 4%, will be on the loosing end of the betAc€??. a. Explain verbally and illustrate graphically what will happen to the price of bonds if expected inflation increases to 4% from 2%. Be sure to include in your answer the demand the bond market. b. Explain why someone buying long-term bonds yielding 1.5% or 2% and then seeing consumer price inflation of 4%, will be on the loosing end of the bet. c. Suppose that you expect a greater increase in inflation than do others investors, but that you do not expect the increase to occur until 2015. Should you wait until 2015 to sell your bond? Briefly explain. d. The columnist also argued that long-term bonds would be a good investment if only Ac€A? when we get serious price deflationAc€?? Ac€?c *Explain verbally and illustrate…The Fed is expected to raise the interest rate to nearly 5% in 2023. What is the impact of this policy on inflation and stock market? a. Inflation increases and stock prices increase b. Inflation increases and stock prices decrease a. Inflation decreases and stock prices increase b. Inflation decreases and stock prices decreaseAssume the Bank of Canada conducts an open market purchase, which increases real GDP. What happens to the interest rate after both of these effects are taken into account when prices are held fixed? A) there is no change in the interest rate. B) the interest rate rises. C) the interest rate falls. D) the effect on the interest rate is ambiguous the answer was D. PLEASE EXPLAIN AND I WILL GIVE THUMBS UP
- How is the interest rate affected by an increase in expected inflation? Explain.After a series of measures to remedy the mortgage crisis that has beset the US economy, Ben Bernanke, chairman of the Board of Governors of the Federal Reserve and his colleagues are once again looking at cutting the central bank’s key interest rate as they hope that lowering the interest rates will give the economy a boost by encouraging investors and consumers to borrow and spend (Associated Press, n. pag.). The Fed is looking at slashing the interest rate by a full percent however, many economist believe that this is not the appropriate remedy for economic conundrum (Gavin, n. pag). According to many analysts, the issue of the economy regarding the mortgage is the lack of confidence by both the lender and the borrower. Even as the Fed resorts to drastic interest cuts, the first time the central bank has cut a full percentage point in one shot since 1982, this provides little help if lenders are not loaning money out of fear they will not be repaid and the borrowers…Jake receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Jake's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate (Percent) Real Interest Rate (Percent) Nominal Interest Rate (Percent) After-Tax Nominal Interest Rate (Percent) After-Tax Real Interest Rate (Percent) 2.0 4.5 9.5 4.5 Compared with lower inflation rates, a higher inflation rate will (a. increase, b. decrease) the after-tax real interest rate when the…
