Assignment:
Directions: Please answer each of the following questions in a paragraph for each. Explain your thoughts with theory and examples where applicable.
1. For which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a.U.S. government bond or a Brazilian government bond
b.U.S. government bond or a municipal bond with the same term and issued by a creditworthy municipality?
c.6-month Treasury bill or a 20-year Treasury bond
d.Microsoft bond or a bond issued by a new recording company
2. Identify each of the following acts as representing either saving or investment.
a. Fred uses some of his income to buy government bonds.
b. Julie takes some of her income and buys mutual funds.
c. Alex purchases a new truck for his delivery business using borrowed funds.
d. Elaine uses some of her income to buy stock in a major corporation.
e. Henrietta hires a builder to construct a new building for her bicycle shop.
3. Demonstrate that whether you would prefer to have $225 today or wait five years for $300 depends on the interest rate. Show your work.
4. Write the rule of 70. Suppose that your great-great-grandmother put $50 in a savings account 100 years ago and the account is now worth $1,600. Use the rule of 70 to determine about what interest rate she earned.
5. List three different ways that a risk-averse person can reduce financial risk.
6. Following the recession of 2001, there was a month in which employment and the unemployment rate both rose. Assuming the computation were correct, how is it possible for both to have increased?
7. Why might a favorable change in the economy, such as technological improvement or a decrease in the price of imported oil, be associated with an increase in frictional unemployment?
8. What is the theory of efficiency wages? Provide four reasons that employers might pay efficiency