LSCPA MICROECONOMICS CONNECT ACCESS
21st Edition
ISBN: 9781260720761
Author: McConnell
Publisher: MCG
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Chapter 18, Problem 7DQ
To determine
Economic functions of the interest rate.
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Q3)
(For the first 20 bond problems, assume interest payments are on an annual basis.)
Bond value (LO10-3) The Lone Star Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 20 years. Compute the current price of the bonds if the present yield to maturity is
6 percent.
9 percent.
Suppose that the interest rate at which Joanne can borrow and lend is 10 percent per year, but she can earn $22,000 with a high school degree. Her tuition and books at college cost $6,000 and her living expenses are $15,000 per year. Savings are deposited at the end of the year they are earned and receive (compound) interest at the end of each subsequent year. Similarly, the loans are taken out at the end of the year in which they are needed, and interest does not accrue until the end of the subsequent year. Now that the interest rate has risen, should Joanne go to college or go to work?
4. Does the I in C+I+ G Nx include purchases of stocks and bonds? Why or why not? Lo2 t nnmnonent of I in
Chapter 18 Solutions
LSCPA MICROECONOMICS CONNECT ACCESS
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- How much would you pay for a perpetual bond that pays an annual coupon of $200 per year and yields on competing instruments are 5%? You would pay $. (Round your response to the nearest penny.) Part 2 If competing yields are expected to change to 8%, what is the current yield on this same bond assuming that you paid $4,000? The current yield is %.(Round your response to the nearest integer.) Part 3 If you sell this bond in exactly one year, having paid $4,000, and received exactly one coupon payment, what is your total return if competing yields are 8%? Your total return is %.arrow_forwardAccording to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? O. 1971 O. 1972 O. 1973 O. 1974 O. 1975arrow_forward25) The graph above shows the market for a one-year discount bond with a face value of $1,000. The government's budget deficit increases by $150 million and to finance that deficit it borrows in this market. This will result in the private-sector borrowing to be crowded out by X dollars. What is the value of X? O. 50 O. 100 O. 150 O. 200 26). The graph above shows the market for a one year discount bond with a face value of $1,000. The government's budget deficit increases by $150 million and to finance that deficit it borrows in this market. This results in the private-sector borrowing to be crowded out. At the end, the private sector will end up borrowing X dollars. What is the value of X? O. 50 O. 100 O. 150 O. 200 O. 250arrow_forward
- The interest rate is 6 percent a year and you expect to receive $1,000 next year and the following year. What is the present value of $1,000 to be received next year? What is the present value of $1,000 tobe received in two years? The present value of $1,000 to be received next year is $ ____. >>>>Answer to 2 decimal places.arrow_forward10. What is the present value of a perpetuity of $100 if the appropriate discount rate is 7%? If interest rates in general were to double and the appropriate discount rate rose to 14%, what would happen to the present value of the perpetuity?arrow_forward267. Suppose you invest $5,000 of your own money in shares of a company and choose to leverage that investment using a 5:1 ratio. If the price of the shares decreases by 10%, by how much has your invested money decreased, assuming no other fees? $500 $1.500 $2,500 $5,000arrow_forward
- 15. Consider a government bond with a face value of $10 000, and a present value of $9500. If this bond is offered for sale at $9600, then the lack of demand for this bond will drive the price down until it reaches its equilibrium market price of $9500. individuals will purchase the bond at the offer price which will drive the market rate of interest down. the equilibrium market price of this bond has been achieved. the excess demand for the bond at $9600 will drive the price up to the face value of the bond. individuals will purchase the bond at the offer price which will drive the market rate of interest uparrow_forwardThree students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students’ investment projects: Student Return (Percent) Carlos 4 Felix 7 Janet 15 Assume borrowing and lending is prohibited, so each student uses only personal saving to finance his or her own investment project. Complete the following table with how much each student will have a year later when the project pays its return. Student Money a Year Later (Dollars) Carlos Felix Janet Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate rr. A student would choose to be a lender in this market if his or her expected rate of return is than rr. Suppose the interest rate is 6 percent. Among these three students, the quantity of loanable funds supplied would be ,…arrow_forwardHow much would you pay for a perpetual bond that pays an annual coupon of $200 per year and yields on competing instruments are 5%? You would pay $. Part 2 If competing yields are expected to change to 8%, what is the current yield on this same bond assuming that you paid $4,000? The current yield is %.(Round your response to the nearest integer.) Part 3 If you sell this bond in exactly one year, having paid $4,000, and received exactly one coupon payment, what is your total return if competing yields are 8%? Your total return is %.arrow_forward
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