Foundations of Economics (8th Edition)
Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 26, Problem 2MCQ
To determine

To find:

The option that correctly states the rate of interest on the bond.

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Suppose that the demand for laonable funds for car in the Milwaukee area is $11million per month at an interest rate of 10 percent per year, $12million at an interest rate of 9 percent per year, $13million at an interest rate of 8 percent per year and so on. a. If the supply of loanable funds is fixed at $17million, what will be the equilibrium interest rate? b. If the government imposes a usury law and says that car loans cannot exceed 3 percent per year, how big will the monthly shortage (or excess demand) for car loans be?  c. How big will the monthly shortage for car loans be if the usury limit is raised to 7 percent per year?
To pay off your student loan, you must pay $10,000 at the end of the year for the next three years. The interest rate is 5 percent a year. What is the present value of these payments?     A. $30,000.00   B. $27,232.48   C. $8,638.28   D. $29,100.00
True or False: With a discount bond, the return on a bond is equal to the rate of capital gain. A. True: A discount bond has no coupon payments so the return on the bond is equal to the rate of capital gain. B. False: Bond returns can never equal the rate of capital gain; there must be a capital loss or gain indicated. C. True: A discount bond pays fixed interest payments every year so the return is equal to the rate of capital gain. D. There is no way to determine this without the knowing the coupon amount and interest rate.
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