A) In late 2012 the inflation rate in the U.S. was about 2%. In the Wall...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A) In late 2012 the inflation rate in the U.S. was about 2%. In the Wall Street Journal, a columnist wrote: "Someone buying long-term bonds yielding 1.5% or 2%, and then seeing consumer price inflation of 4%, will be on the losing end of the bet." a. Explain what will happen to the price of bonds if the expected inflation rate increases to 4% from 2%. Include a demand and supply graph of the bond market. b. Suppose that you expect a greater increase in inflation than do other investors, but that you don't expect the increase to occur until 2015. Should you wait until 2015 to sell your bonds? Briefly explain. c. The columnist also argued that long-term bonds would be a good investment only if "we get serious price deflation." Explain the effect on bond prices if investors decide that price deflation is likely to occur. How would an unexpected deflation affect the rate of return on your investment in bonds? d. If expected inflation is increasing, would you have made a worse investment if you had invested in long-term bonds than if you had invested in short-term bonds? A) In late 2012 the inflation rate in the U.S. was about 2%. In the Wall Street Journal, a columnist wrote: "Someone buying long-term bonds yielding 1.5% or 2%, and then seeing consumer price inflation of 4%, will be on the losing end of the bet." a. Explain what will happen to the price of bonds if the expected inflation rate increases to 4% from 2%. Include a demand and supply graph of the bond market. b. Suppose that you expect a greater increase in inflation than do other investors, but that you don't expect the increase to occur until 2015. Should you wait until 2015 to sell your bonds? Briefly explain. c. The columnist also argued that long-term bonds would be a good investment only if "we get serious price deflation." Explain the effect on bond prices if investors decide that price deflation is likely to occur. How would an unexpected deflation affect the rate of return on your investment in bonds? d. If expected inflation is increasing, would you have made a worse investment if you had invested in long-term bonds than if you had invested in short-term bonds?
Expert Answer:
Answer rating: 100% (QA)
A a If the expected inflation rate increases to 4 the price of bonds will decrease due to a decrease ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
Suppose that you expect to work for another 50 years and then live 20 years in retirement. You have no wealth, and there are no taxes. You want to smooth consumption over your lifetime, and you will...
-
Explain what will happen to U.S. potential GDP, employment, and real wage rate. Suppose that the United States cracks down on illegal immigrants and returns millions of workers to their home...
-
Explain what will happen to the price level, Real GDP, and the unemployment rate in the following cases: a. AD rises and SRAS is constant. b. AD falls and SRAS is constant. c. AD is constant and SRAS...
-
Some managers and union officials also refer to the collective agreement as what? Multiple Choice The real boss The rule book The bible The guiding framework Strategic doctrine
-
Annual versus cumulative data for replacement decision Because of rapidly advancing technology, Andersen Publications Corporation is considering replacing its existing typesetting machine with leased...
-
Use Solver to create a Sensitivity Report for question 16 at the end of Chapter 3, and answer the following questions: a. Is the solution degenerate? b. Explain the value of the shadow price...
-
The following information has been extracted from the draft financial information of V Ltd: Dividend paid = 52,000 (a) You are required to prepare a cash flow statement for V Ltd for the year ended...
-
Milo Company had a beginning inventory of 400 units of Product Kimbo at a cost of $8 per unit. During the year, purchases were: Milo Company uses a periodic inventory system. Sales totaled 1,500...
-
I want answer from you, thank you. M and N Sporting Goods reports these selected transactions for the month of July: July 9: Issued invoice No. 159 for a sale on account to Evans Company, $4,600, t...
-
Valu-Com Electronics manufactures five different models of telecommunications interface cards for personal and laptop computers. As summarized in the following table, each of these devices requires...
-
It is given: m = 2; n=1; (m,n)=120. i. Find the norm of the vector m + 2n. ii. Determine if the vectors (m + 2n) and (-m + n) are orthogonal.
-
The following data come from the financial records of Finch Corporation for Year 3: Sales Interest expense $ 845,000 5,200 Income tax expense 30,000 29,500 Net income Required How many times was...
-
A 870-g quantity of a substance is at its melting point of -117.9C in the liquid state. The heat of fusion of ethanol is 1.63 105 J/kg, the molecular mass is 32.8 g/mol, and the ideal gas constant is...
-
a. Paid $10 cash for additional intangible assets. b. Issued additional shares of common stock for $50 in cash. c. Purchased equipment; paid $30 in cash and signed additional long-term loans for $70....
-
Explain the effects of the policy-making process and its implementation within healthcare. Discuss the role and impact of lobbyists, special interest groups, and other consumer advocates on the...
-
The temperature inside a Carnot refrigerator is5.85C. What is the high temperature, Th, in Celsius needed to give this refrigerator a coefficient of performance of 10.5?
-
Carter Cleaning Centres Getting Better Applicants If you were to ask Jennifer and her father to state the main issue they faced in running their business their answer would be quick and short: hiring...
-
Draw two scatterplots, one for which r = 1 and a second for which r = 21.
-
Robert Ramos (age 36) is a single taxpayer, living at 8765 Bay Dr., Monterey, CA 93940. His Social Security number is 976-23-5132. Robert's earnings and income tax withholding as the manager of a...
-
Larry Gaines, age 42, sells his personal residence on November 12, 2012, for $144,000. He lived in the house for 7 years. The expenses of the sale are $10,500, and he has made capital improvements of...
-
Ann hires a nanny to watch her two children while she works at a local hospital. She pays the 19-year-old nanny $125 per week for 48 weeks during the current year. a. What is the employer's portion...
-
Consider the family of differential equations \(x^{\prime}=x^{3}+\delta x^{2}-\mu x\). a. Sketch a bifurcation diagram in the \(x \mu\)-plane for \(\delta=0\). b. Sketch a bifurcation diagram in the...
-
For each problem, determine equilibrium points, bifurcation points, and construct a bifurcation diagram. Discuss the different behaviors in each system. a. \(y^{\prime}=y-\mu y^{2}\) b....
-
Plot phase portraits for the Lienard system \[\begin{aligned} & x^{\prime}=y-\mu\left(x^{3}-x ight) \\ & y^{\prime}=-x \end{aligned}\] for a small and a not so small value of \(\mu\). Describe what...
Study smarter with the SolutionInn App