Econ 110B Ch15 Solutions

Econ 110B Ch15 Solutions - Economics 110B Solutions to...

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Economics 110B Solutions to Practice Questions for Chapter 15 1) The term structure of interest rates illustrates the relationship between the yield to maturity on bonds (with the same risk characteristics) and maturity. 2) The price of the two-year bond will be a function of the face value of the bond, the current one-year nominal interest rate, and the future expected one-year nominal interest rate. An increase in either of the one-year nominal interest rates will reduce the present value of the bond and, therefore, reduce its price. An increase in the face value would increase the price. 3) The two-year nominal interest rate will be a function of the current one-year nominal interest rate and the future expected one-year nominal interest rate. In fact, it will be approximately equal to the average of these two nominal interest rates. So, an increase in either of the one-year nominal interest rates will cause the two-year nominal interest rate to rise. 4) A downward sloping yield curve implies that the future expected one-year nominal interest rate is lower than the current one-year nominal interest rate. 5)
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This note was uploaded on 05/01/2011 for the course ECON 110B taught by Professor Peters during the Spring '07 term at UCSD.

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Econ 110B Ch15 Solutions - Economics 110B Solutions to...

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