Question: QUESTION ONE a)Using the loanable funds theory, illustrate the effect of the following changes on the level of interest rates: Decrease in demand for loanable

QUESTION ONE

a)Using the loanable funds theory, illustrate the effect of the following changes on the level of interest rates:

Decrease in demand for loanable funds.

Decrease in the supply of loanable funds.

b) A K100, 000 Treasury bill currently sells at 95% of its face value and is 65 days from maturity. Calculate the following for the Treasury bill:

the discount yield.

the investment yield

There are four general approaches to gauging credit risk. Two of them are credit ratings and traditional credit analysis. State and briefly explain the other two

approaches to gauging credit risk.

d)What is the present value of a corporate bond with a coupon rate of 6% that pays you K102.50 in the next six months and K110 in the next 12 months?

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