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Unformatted text preview: year or after two years. If it is redeemed after one year, the investor gets $110. If it is redeemed after two years, the investor gets $117.70. The investor gets no other payments than what she receives when she re-deems the bond. In equilibrium, investors will be willing to pay more than $100 for this bond. ____ 5. A consumer who can borrow and lend at the same interest rate should prefer an endowment with a higher present value to an endowment with a lower present value, no matter how he plans to allocate consumption over the course of his life. ____ 6. If everybody has the same information, then a well-functioning market for assets would, in equilibrium, leave no opportunities for arbitrage. ch11a Answer Section MULTIPLE CHOICE 1. ANS: D PTS: 1 DIF: 2 2. ANS: D PTS: 1 DIF: 2 TRUE/FALSE 3. ANS: F PTS: 1 DIF: 1 4. ANS: F PTS: 1 DIF: 1 5. ANS: T PTS: 1 DIF: 1 6. ANS: T PTS: 1 DIF: 1...
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- Spring '08