For all of your graphs, be sure to label the axes and clearly denote equilibrium prices and
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For all of your graphs, be sure to label the axes and clearly denote equilibrium prices and quantities. The first 3 are 2 point questions
- In the portfolio choice model, depict graphically the effect of a decrease in wealth. What happens to the equilibrium price of bonds and the equilibrium interest rate?
3-4. In the portfolio choice model, depict graphically the effect of the government running a budget surplus. What happens to the equilibrium price of bonds and the equilibrium interest rate?
5-6. In the liquidity preference model, depict graphically the effect of a decrease in the money supply. What happens to the equilibrium price of bonds and the equilibrium interest rate?
Interest and Taxes.
- Assume you buy a bond paying 8% interest, and that your tax rate is 50%. What is your after-tax return? _______
- Using the information in problem 7 above, if the rate of inflation is 5%, what is your after-tax real return? _______________
Term Structure
- If the current and expected future one-year interest rates are 5%, 4%, 3%, using the expectations theory of the term structure, the three year interest rate is _________?
- If the current and expected future one-period interest rates are 4%, 5%, 6%, 5% and 5%, and the liquidity premium is 0.5%, the five-period interest rate is __________?
Related Book For
Economics
ISBN: 978-0073375694
18th edition
Authors: Campbell R. McConnell, Stanley L. Brue, Sean M. Flynn
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