F03_MISH1438_06_IM_MiniCase

F03_MISH1438_06_IM_MiniCase - Solutions to Online...

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Solutions to Online Mini-Cases The complete set of mini-cases and solutions can be found on the text’s companion website at http://www.prenhall.com/mishkin_eakins. Chapter 3 Mini-Case 1. $40.00 2. $840.00 3. $55.77 4. a. 10.75% b. 11.63% 5. a. 12.25% b. 12.50% 6. a. - 3.28% b. 4.71% 7. a. $968.30 b. $940.20 c. $37.80 d. $80.70 e. 4.06% f. 9.39% g. Changes in interest rates make investments in long-term bonds more risky. Prices and returns for long-term bonds are more volatile than those for short-term bonds. 8. a. 400 b. 1000 c. $1,433 d. $1,452 e. 13.50% = {[(1,433 - 930.50)/930.50] × 100} ÷ 4 f. 14.01% = {[(1,452 - 930.50)/930.50] × 100} ÷ 4 g. Because earning interest on interest affects total return on the investment. h. 3.5 years 9. 4.38%
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xxii Mishkin/Eakins • Financial Markets and Institutions, Sixth Edition 10. 7.00% Chapter 4 Mini-Case 1. a. 25.00% b. 17.65% c. 11.11% d. 5.26% e. 0.00% 2. $833.33 3. Wealth Expected returns on bonds relative to alternative assets Risk of bonds relative to alternative assets Liquidity of bonds relative to alternative assets 4. Expected profitability of investment opportunities Expected inflation Government activities 5. The Fisher effect is named for Irving Fisher, who pointed out that “When expected inflation rises, interest rates will rise.” 6. The loanable funds framework provides a theory of how interest rates are determined by examining the supply and demand for bonds. The liquidity preference framework focuses on the supply and demand for money, indicating how interest rates are determined. Both theories attempt to monitor the direction and degree of change in interest rates. 7. Note : Various predictions are possible in some of the following, leading to in-class discussions. Consider the following possible initial responses: a. If supply curve shifts more than demand, equilibrium interest rates rise b. With other economic variables constant, interest rates rise c. In general, interest rates rise d. As demand falls, interest rates rise e. Equilibrium interest rates fall f. If government securities supplied exceeds demand, interest rates rise g. As income increases, interest rates rise h. As the price level increases, interest rates rise i. Increases interest rates j. Demand shifts from bonds, raising interest rates
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Solutions to Online Mini-Cases xxiii Chapter 5 Mini-Case 1. Use your favorite search engine to find such key words/phrases as: “Yield Curve” “Expectations Theory” “Preferred Habitat Theory” “Liquidity Premium Theory.” Consider sites from Bloomberg, Stocktrader, Bondbasics and various FRB sites. 2. Obtain most recent Yield Curve information from Internet site. ( Note : consider the most recent site at www.bloomberg.com). 3.
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This note was uploaded on 10/17/2011 for the course ECON 317 taught by Professor Guidry during the Spring '11 term at Nicholls State.

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F03_MISH1438_06_IM_MiniCase - Solutions to Online...

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