What is the expected (theoretical) relationship between inflation and the growth rate of money in modern economies? Has this relationship materialized in the data in the case of the United States over time? Explain any discrepancies that may have been observed between the theory and the data. Be able to calculate the payoff to an investment with and without leverage (borrowing). Be able to work out some numerical examples. Understand the factors that influence the full cost of a loan payment. What options does the borrower have to reduce the overall cost of the loan? Understand the term structure of interest rates; i.e., the relationship between short- term and long-term interest rates. What theories have been proposed to explain the relationship? Does the data support these theories? Be able to interpret the data on a graph showing trends of various interest rates over time. What is the relationship between bond prices and interest rates in a market economy? Be able to explain (verbally and graphically) the impact of shocks on the bond market equilibrium; specifically: a change in inflation expectations; a recession; increased budget deficit financing. What does the dividend-discount model say about the factors that influence the price of a bond? What does the Efficiency Market Hypothesis (EMH) say about the trend of the price of a stock in a fee market? What are the conditions (theoretical assumptions) for the validity of the EMH proposition? 1. Assess the validity of the Efficiency Market Hypothesis for the valuation of stocks. Does the data support the EMH? What factor may invalidate the EMH? Be able to interpret the data on trends and patterns of the market returns on stocks and other assets (ETFs, mutual funds, ...) over time.