Pearson eText Microeconomics -- Access Card
2nd Edition
ISBN: 9780136849513
Author: Acemoglu, Daron, Laibson, David, List, John
Publisher: PEARSON
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Question
Chapter 15, Problem 6P
To determine
The interest rate on bond and the relationship between price and interest rate.
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Students have asked these similar questions
How would the price of the bond be affected by changing the going market interest rate? (Hint: Conduct a sensitivity analysis of price to changes in the going market interest rate for the bond. Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate. That is an oversimplification, but assume it anyway for purposes of this problem.)
You own a zero-coupon bond that will pay 10,000 in two years. The interest rate from 2021 to
2022 is 0.09 and the interest rate from 2022 to 2023 is 0.03. What is the current price of this
bond? Please give your answer to two decimal places. (Hint: one must discount this bond twice:
once from 2022 to 2021; and then again from 2021 to 2020.)
If the price of a government bond (gilt) traded on the stock market rises above its nominal value, which of the following statement must be true?
1 -The bond's coupon falls below the yield
2 - The bond's coupon rises above the yield
3-the bond's yield rises above the coupon
4 - the bond's yield falls below the coupon
Chapter 15 Solutions
Pearson eText Microeconomics -- Access Card
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- Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a demand and supply diagram to support your answers. Because of a threat of war, people become uncertain about their economic future. The overall level of saving in the economy diminishes. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.arrow_forwardSuppose 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 buyarrow_forwardSuppose that owning the building for a year would earn you $8,000. To decide whether you will be better off by owning it for one year and then selling it, you seek advice from three different people: (1) Your brother says that you should not buy the building because in one year it will cost you $150,000. (2) Your accountant says that you should definitely buy the building because you can borrow $150,000 at zero interest while the building will generate $8,000 in extra income. Then when you sell it, you will be $8,000 richer. (3) Your bookkeeper says that if you sell the building in a year, you will have to come up with more money to pay off the loan than you will make in extra income. Keeping in mind that the economy experiences deflation at the rate of 10%, your The extra income you will earn will be less than the cost of owning the t accountant year When the nominal interest rate is zero, you do not incur any cost when brother loan When the nominal interest rate is zero, the cost of…arrow_forward
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