Suppose that the interest rate drops to R′ = 0.2 Explain in words how this change...
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Suppose that the interest rate drops to R′ = 0.2 Explain in words how this change will affect the firms investment decision.
Homework Answers
The investment decision of a firm depends on the interest rate at which they can borrow the funds. As for making the investment, borrowed funds are also used. If the interest rate falls, the cost of borrowing will be reduced hence there will be an increase in investment. So with the interest rate dropping, the investment of the firm will increase.
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Suppose that the interest rate drops to R′ = 0.2 Explain in
words how this change...
How does a change in interest rate affect your decision to spend or save? How would...
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explain thefollowing in 400 words: 1. How does collateral affect the interest rate on a bond?...
explain thefollowing in 400 words: 1. How does collateral affect the interest rate on a bond? How does subordination affect the interest rate on a bond too? What else might affect the interest rate on a bond? 2. What is liquidation and reorganization? When should each be used? Please choose one company that has gone through either type of bankruptcy proceeding and describe the circumstances leading up to the filing.
explain how a decrease in the interest rate will affect investment
explain how a decrease in the interest rate will affect investment
Part 1 - Use the loanable funds market to graphically show how real interest rate (r),...
Part 1 - Use the loanable funds market to graphically show how real interest rate (r), saving (S) and investment (I) would change when the goverment increase the tax rate on interest income. Explain in detail. Part 2 - Use the loanable funds market to graphically show how real interest rate (r), saving (S) and investment (I) would change when the goverment cut the tax rate on corporate prot. Explain in detail.
Suppose the Bank Negara Malaysia change the quantity of money in the economy. Graphically illustrate how does this change affect the interest rate in the short run?
Suppose the Bank Negara Malaysia change the quantity of money in the economy. Graphically illustrate how does this change affect the interest rate in the short run?
(i) Explain the difference between the nominal and real interest rate. (ii) How does the Reserve...
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Using the model of loanable funds developed in Chapter 3, explain how the following changes affect...
Using the model of loanable funds developed in Chapter 3, explain how the following changes affect the real interest rate, investment, consumption, and government expenditure. Include the appropriate diagram as part of your answer in each case. Initially assume that consumption depends only on disposable income. (a) The government increases taxes. (b) Expectations about the future profitability of investment improve. (Hint: For a given real interest rate, r, firms will invest a greater amount after expectations improve). (c) How does...
The change in the exchange rate affects the national balance. Suppose the relative value of the...
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Suppose that the market interest rate is 4% and then drops overnight to 2%. Calculate the...
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You are given the following information about an economy(interest rate is measured in percentage points). A...
You
are given the following information about an economy(interest rate
is measured in percentage points). A five percent interest is r =
5.
1. You are given the following information about an economy (note: the interest rate is measured in percentage points. A five percent interest is r5): (M/P) = 100 (M/P)"=0.2 Y - 10 C = 150+ 0.667 YD-10 I=200 - 10r + 0.1 Y G=200 NX = 50 | T = 0.25 Y YD = Y-T A. (i)...
Suppose that the market interest rate is 4% and then drops overnight to 2%. Calculate the present values of the 1.25%, 3-year bond and of the 1.25%, 30-year bond both before and after this change in interest rates. Assume annual coupon payments. Confirm that your answers correspond with Figure 6.5. Use your financial calculator or a spreadsheet. You can find a box on bond pricing using Excel later in this chapter. FIGURE 6.5 Plot of bond prices as a function...
You
are given the following information about an economy(interest rate
is measured in percentage points). A five percent interest is r =
5.
1. You are given the following information about an economy (note: the interest rate is measured in percentage points. A five percent interest is r5): (M/P) = 100 (M/P)"=0.2 Y - 10 C = 150+ 0.667 YD-10 I=200 - 10r + 0.1 Y G=200 NX = 50 | T = 0.25 Y YD = Y-T A. (i)...
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