Assignment
1. What are the four variables that impact demand for assets by identifying the cause and effect for each as it relates to an increase in quantity demanded?
2. If Wilma borrows $5,000 from her brother (at 5% interest per year) and the loan matures in 10 years, how much will she have to pay annually to pay the loan off in 10 years? How much will she have to pay annually to pay the loan off in four years? (Show all work/calculations/formulas. You may use a financial calculator, but must identify your methodology.)
3. What is the real interest rate if the nominal interest rate is 12% and inflation is expected to produce a 10% increase (for the cost of assets) over the same period? Describe whether the result is good for borrowers, lenders, or both. (Show all work/calculations/formulas.)
4. What are the three factors that affect supply in the Bond Market, and how do they correlate to the downward or upward shift of the supply curve?
5. Assuming market efficiency: What is the efficient market hypothesis? If XYZ Corporation's stock is expected to fall next year to $45 and the closing price was $60 yesterday, what would be the price today if the annual equilibrium return is 10%?
6. Yearly rates are 4%, 5%, 6%, 7%, and 8% for the next five years. Please compute and explain the expected interest rate for both the three and four-year bonds during the period. (Show your work/calculations/formulas.)
7. If the default risk of corporate bonds decreases, what will happen to the demand for corporate bonds, the price of corporate bonds, the demand for treasuries, and the price for treasuries? Also, explain what direction the demand curve moves for corporate bonds and treasuries (either to the left or to the right).
8. What is the term structure of interest rates, and its three facts?
9. How was the Federal Reserve System established? What is its organizational structure?
10. What are the advantages of inflation targeting?
11. When applying monetary policy, the Federal Reserve System is known as "the lender of last resort." What does this mean, and what tools are used during a lending crisis?
12. What are the three tools of monetary policy?
13. Compare and contrast three models of stock valuation. What are the concepts behind each model?
14. What is current yield? We would like to determine the current yield of an investment (bond) that has a par value of $1,000 and a coupon interest rate of 3.25%. The market price is $927.50. (Show all work/calculations/formulas.) Note: Show the resulting percentage to at least two decimal places (for example, 1.25%, etc.