HW2 - Answer KEY

HW2 - Answer KEY - 13.8 YTM Bond B 7.1 27 Are the results...

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NAME: ________________________________ EC370 – Winter 2009 HW2 Answer KEY Write your answers to the multiple choice questions in the appropriate space using CAPITAL LETTERS. 1) D 7) C 13) D 19) B 2) C 8) D 14) B 20) D 3) A 9) D 15) C 21) C 4) C 10) B 16) B 22) A 5) B 11) D 17) B 23) C 6) A 12) D 18) A 24) D 25) Assume bonds A and B are identical in terms of risk and you are trying to determine which bond to purchase. If you hold until maturity and are only interested in purchasing the bond with the highest return, which bond would you rather buy? Bond A (since it has the highest YTM) 26) Report your findings for the yield to maturity for each bond (in percentage terms): YTM Bond A: _
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Unformatted text preview: 13.8 _% YTM Bond B: _ 7.1 _% 27) Are the results from the IRR function the same as those using the Goal Seek method? Circle one, kindergarten style: YES / NO 28) Chapter 5 #16 If the public believes the president’s program will be successful, interest rates will fall. The president’s announcement will lower expected inflation so that the expected return on goods decreases relative to bonds. The demand for bonds increases. For a given nominal interest rate, the lower expected inflation means the real interest rate has risen, raising the cost of borrowing so that the supply of bonds falls. These two effects in combination should cause an unambiguous FALL in the equilibrium interest rate....
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