$.$ Using both the supply and demand for bonds and liquidity preference frameworks, show how

interest rates are affected when the riskiness of bonds rises. Are the results the same in the two

frameworks? $($Chapter $5)$

$2.$ The demand curve and supply curve for one$-$year discount bonds with a face value of $$1,000$

are represented by the following equations $($Chapter $5)$

Bd: Price $=0\mathrm{.}6\backslash$times Quantity $+1,140$

Bs: Price $=$ Quantity $+700$

Suppose that, because of monetary policy actions, the Federal Reserve sells $80$ bonds that it

holds. Assume that bond demand and money demand are held constant.

a$.$ How does the Federal Reserve policy affect the bond supply equation?

b$.$ Calculate the effect of the Federal Reserve$$s action on the equilibrium interest rate in this

market.

$3.$ If a yield curve looks like the one shown in the figure below, what is the market predicting about

the movement of future short$-$term interest rates? What might the yield curve indicate about the

market$$s predictions for the inflation rate in the future? $($Chapter $6)$

$4.$ Suppose firm A$$s stock is current sold at $$30$ per share in the market $23.$ After careful analysis,

you have determined that a firm$$s dividends should grow at $7\%,$ on average, in the foreseeable

future. The firm$$s last dividend was $$3.$ If your required return is $18\%,$ is firm A$$s stock a good

investment? $($Chapter $7)$