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by: Mandy Schmitt


Mandy Schmitt
OK State
GPA 3.53

Abdul Munasib

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About this Document

Abdul Munasib
Class Notes
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This 0 page Class Notes was uploaded by Mandy Schmitt on Sunday November 1, 2015. The Class Notes belongs to ECON 3313 at Oklahoma State University taught by Abdul Munasib in Fall. Since its upload, it has received 17 views. For similar materials see /class/232928/econ-3313-oklahoma-state-university in Economcs at Oklahoma State University.


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Date Created: 11/01/15
Abdul Munasz39b Econ 3313 Answers to endofthechapter questions I Chapter 4 page 91 2 No because the present discounted value of these payments is necessarily less than 10 million as long as the interest rate is greater than zero Therefore as long as 139 gt 0 you have really won 1 m11110n 1 11111112011 1 m111130n I I 1 11111111311 lt 10X1 million 10m li0n 1i 1i 1i 1i 4 The yield to maturity is less than 10 percent Only if the interest rate was less than 10 percent would the present value of the payments add up to 4000 which is more than the 3000 present value in the previous problem i 1000 800 800 8 If the interest rate were 12 percent the present discounted value of the payments on the government loan are necessarily less than the 1000 loan amount because they do not start for two years Thus the yield to maturity must be lower than 12 percent in order for the present discounted value of these payments to add up to 1000 10 If you have actually picked up the news paper and chose 5 bonds you already know this In case you haven t the lesson here is this the current yield will be a good approximation to the yield to maturity whenever the bond price is very close to par or when the maturity of the bond is over ten years 12 You would rather be holding long term bonds because their price would increase more than the price of the short term bonds giving them a higher return 14 People are more likely to buy houses because the real interest rate when purchasing a house has fallen from 3 percent 5 percent 2 percent to 1 percent 10 percent 9 percent The real cost of nancing the house is thus lower even though mortgage rates have risen If the taX deductibility of interest payments is allowed for then it becomes even more likely that people will buy houses 025 25


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