ECO349H5 Study Guide - Midterm Guide: Liquidity Preference, Autarky
Document Summary
This test should be answered in ballpoint pen. Students who attempt the test in pencil, except the diagram in question 5(b), would surrender their right to request for re-assessment. (ii) Answer all questions in point form and only in the designated page(s). Discuss the advantage(s) and disadvantage(s) of cheques as payments system. Page 2 of 4: assume a bond has three years to maturity, coupon rate at 10% in which one coupon payment received at the end of each year, and a face value of ,000. Suppose the current interest rate is 10% (year 1). There are only two possible scenarios with equal probability: Scenario a interest rate will rise 2% every year in year 2 and year 3; and scenario b interest rate will drop 2% every year in year 2 and year 3. Your investment strategy is to buy the bond and hold it for only one year. Briefly explain why you might change your decision if.
