chapter 26 - apter 26, Question 1 (Mankiw, 4th edition) 1....

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apter 26, Question 1 (Mankiw, 4th edition) 1. The bond of an eastern European government would pay a higher interest rate than the bond of the U.S. government because there would be a greater risk of default. 2. A bond that repays the principal in 2025 would pay a higher interest rate than a bond that repays the principal in 2005 because it has a longer term to maturity, so there is more risk to the principal. 3. A bond from a software company you run in your garage would pay a higher interest rate than a bond from Coca-Cola because your software company has more credit risk. 4. A bond issued by the federal government would pay a higher interest rate than a bond issued by New York State because an investor does not have to pay federal income tax on the bond from New York state. Chapter 27, Question 2 a. The present value of $15 million to be received in four years at an interest rate of 11% is $15 million/(1.11)4 = $9.88 million. Because the present value of the payoff is less than the cost, the project should not be
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chapter 26 - apter 26, Question 1 (Mankiw, 4th edition) 1....

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