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1. In the USA: If the price of a $100 face value one-year bond is $105 and the coupon is $10, what is the current yield?

2. Considering number 1 above, has the price of the bond risen or declined from the date it was originally issued?

3. Considering number 1, above, has the interest rate gone up or down since the bond was issued?

4. How will investment spending react to the result you determined in 3 above?

5. Considering your answer to question 3, describe what will happen to the capital account in the balance of payments as a result.

6. Considering your answer to question 3, describe what will happen in the foreign exchange market as a result.


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Darryn D'Souza
Darryn D'SouzaLv10
29 Sep 2019

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Related questions

Question 1.

a. What is the difference between interest rates and returns on a bond? Is the RET equal to the interest rate? Why or Why not?

b. What would be the rate of return on a coupon bond bought at face value of $1000 today( with a coupon rate of 15%) and sold for $1200 one year later ?

c. What is the method to calculate the rate of Capital Gain (g)? Is there a capital gain or loss in the above cae? How much?

Question 2.

Explain why you would be more or less willing to buy long-term Government bonds under the following scenarios: Use a demand and supply analysis for bonds, with a given initial equilibrium in the bonds market. ( Diagram necessary)

a.Trading in these bonds increases, making them easier to sell.

b.Relative risk of these bonds compared to other types falls

c.Suppose government has a surplus

Question 3.( Diagram nesscesary)

a. What is the distinction between Real and Nominal Interest rates?

b. Suppose we have an equilibrium in the bonds market with a given expected inflation (he). If inflation rate increases, What will happen to the demand and supply of bonds? Would you be able to say for sure (i.e. with certainty) what will happen to the price of bonds and what will be the quantity bought and sold? Why or why not?

For this question assume that the market was originally in equilibrium. Further assume that the government enacts an effective price ceiling. Given this information, answer the following questions.

1) In order for the price ceiling to be effective, would it have to be placed above or below the equilibrium price?

2) Would an effective price ceiling produce a surplus or shortage in the market?

3) As compared to a competitive market (equilibrium price), what affect would an effective price ceiling have on consumer surplus, producer surplus, and economic surplus?

Part 3: Questions requiring a quantitative answer

Note: All but the last blank are worth 3 points. The last blank in Question 3 is worth 4 points.

1. Suppose HEB sells 2,500 pounds of chicken a week at $3.00 per pound
and is considering raising its prices by 10 percent. The own price elasticity of chicken is –0.41. Given this information:

How many pounds of chicken will
HEB sell if it raises the price? _______.

HEB’sweeklyrevenueaftertheprice increase will be $_____________.

This represents a change in weekly revenue of $_________.

Consumers will be ___________ off as a result of this price change.

Is chicken considered a normal good or an inferior good?___________________ ________________________________.

2. SupposeHEBdoesnotraiseitsprice
and currently sells 2,500 pounds of chicken at $3.00 a week. Assume Kroger located just down the street, however, decides to cut its price of chicken by 10 percent. Assume the elasticity of HEB chicken with respect to the price of Kroger chicken is 0.80. Given this information:

WhatimpactwillKroger’spricecuthaveon the amount of chicken sold weekly by HEB? ______________ pounds.

What impact will this have on HEB’s weekly revenue? $ __________.

What is the new level of revenue at Kroger’s as a result of the price cut? $____________ _________.

3. Assumetheincomeelasticityofdemand
for HEB chicken is 0.60 and it is currently selling 2,500 pounds of chicken a week at $3.00 a pound. Further assume that neither HEB or Kroger raise their prices. If the government, however, raises taxes, thereby lowering consumer disposable income by 5 percent,

How many pounds of chicken will HEB
sell as a result of this tax increase? _______

What impact will this have upon the weekly revenue at HEB? $___________ ___________________

What impact will this have on quantity of chicken sales at Kroger’s? ___________ ________________________________

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