Question

Please limit your answer to a maximum of one short paragraph per question

1. The table on the right shows the most current government economic indicators. How much did the average living standards increase in the US in 2015.

Year GDP in billions of current dollars Real GDP in billions of chained 2009 dollars US Population Estimates 2014 17,393.1 15,982.3 320,289,069 2015 18,036.6 16,397.2 322,761,807 Growth 3.7% 2.6% 0.8% Source: BEA          Source:          Census

2. Indicate if the following financial instrument is M1, M2 or both. A. Small Denomination Time Deposits B. Traveler Checks

3. Explain: The market interest rate and price of bond sold in secondary markets is inversely related.

4. Explain: Yield to maturity for a bond vs the stated interest rate on a bond.

5. There are two $100,000 government bonds issued today. One is a 20-year government bond with a stated interest rate of 10 percent, but the other was a 10-year bond with a stated interest rate of 5 percent. Which one is more expensive?

6. Say you buy a new 10 year bond with a 4% annual coupon and a face value of $1000. After four years you decide to sell in, meaning that there are six (6) years left to maturity. The interest rate is now 6.0 percent. What is the selling price of the bond (show your calculations)

7. Say you get $100,000 mortgage loan with annual payments at 8 percent interest rate for 20 years. What is the annual payment?

8. You buy two bonds. The first is a $1,000 with 7 percent stated interest and five years to maturity. The second is a $1,000 dollar bond with 7 percent stated interest rate and 11 years to maturity. One year later you need money and you decide to sell one bond. You check the interest rate and the market interest rate increases to no 10 percent. Which bond should you sell and why.

Answer 1