Consider a $1,000.00 face value bond with a $55 annual coupon and 10 years until maturity. Calculate the current yield; the coupon rate and the yield to maturity under each of the following:a) The bond is purchased for $940.00b) The bond is purchased for $1,130.00c) The bond is purchased for $1,000.00

What will be an ideal response?


We can use a financial calculator to solve for each of these. The easiest answer is to realize the coupon rate will not change; it is $55/$1,000 or 5.50% (.055). The current yield, which is the coupon divided by the purchase price will vary for each: for a), the current yield is 5.85%; for b) it is 4.87% and for c) it is 5.50%. The yield to maturity will also vary: for a) it is 6.33% for b) it is 3.90% and for c) it is 5.50%.

Economics

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If population growth occurs while jobs are difficult to obtain or labor force participation does not increase

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Contrast the Keynesian and Monetarist views on the effectiveness of fiscal policy.

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The United States does not allow U.S. citizens to trade with Iraq. This is an example of:

A. a quota. B. a sanction. C. a regulatory trade restriction. D. a tariff.

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Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed

would not have sold their tickets for $3,000. These results are an example of A) rational consumer behavior. B) the endowment effect. C) the fallacy of composition. D) the failure to ignore sunk costs.

Economics