6-Discussion Questions

6-Discussion Questions - Lecture 6: Intertemporal Choice...

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Lecture 6: Intertemporal Choice Suggested questions and exercises (Pindyck and Rubinfeld Ch. 15). Questions: 6 Exercises: 2, 3, 4, 11 Additional Discussion Question. QUESTIONS 6. You have noticed that bond prices have been rising over the past few months. All else equal, what does this suggest has been happening to interest rates? Explain. EXERCISES 2. You are offered the choice of two payment streams: (a) \$150 paid one year from now and \$150 paid two years from now; (b) \$130 paid one year from now and \$160 paid two years from now. Which payment stream would you prefer if the interest rate is 5 percent? If it is 15 percent? 3. Suppose the interest rate is 10 percent. What is the value of a coupon bond that pays \$80 per year for each of the next five years and then makes a principal repayment of \$1,000 in the sixth year? Repeat for an interest rate of 15 percent. 4. A bond has two years to mature. It makes a coupon payment of \$100 after one year and both a coupon payment of \$100 and a principal repayment of \$1,000 after

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This note was uploaded on 11/30/2010 for the course ECON 251 taught by Professor Tontz during the Fall '10 term at USC.

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6-Discussion Questions - Lecture 6: Intertemporal Choice...

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