2008SPRING-HW3 - ECO 320L-HW3 Due October 23, 2008...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECO 320L-HW3 Due October 23, 2008 Classtime 1. Problems 3, 4, and 8 from chapter 8. 2. Questions about asset pricing. Definition: The face value (also known as the par value) of a bond is the amount of money the bond will pay when the bond matures matures. (a) Consider a treasury bond that promises to pay $100 (i.e. $100 face value) one year from now. If the annual nominal interest rate is 6%, then what would be the price of this bond today? What would be to the price of this bond if the annual nominal interest rate decreases to 4%? What can you say about the relation between the interest rate and the price of a bond? (b) Consider a treasury bill that promises to pay $100 three years from now. What would be the price of the bond today if the annual nominal interest rate is 6%? Assume that you buy this bond today at this price. One year from today, the annual nominal interest rate goes down to 5% (say due to Feds cutting interest rates). What would be the price of the bond after the interest rate cut? If you sell this bond just after therates)....
View Full Document

This note was uploaded on 02/04/2011 for the course ECON 320L taught by Professor Kuruscu during the Fall '08 term at University of Texas at Austin.

Page1 / 2

2008SPRING-HW3 - ECO 320L-HW3 Due October 23, 2008...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online