1)Suppose that the cost of a movie ticket is 30TL, and a latte costs 15TL. Why would the theater management say the cost of a movie ticket is 30TL and not two lattes? Explain why it is moreefficientto compare the value of commodities in monetary terms.

2)Is it possible for a one-year coupon bond to have a negative nominal interest rate? Explain, how?

3)What will happen in the bond market if the government imposes a limit on the amount of daily transactions? Which characteristic of an asset would be affected? How might it affect the interest rates. Explain with a graph.

4)Suppose that in a country politicians feel that interest rates are too high and they advocate a greater rate of growth of the money supply to decrease the interest rate.

Figure (a) illustrates the effect of an increased rate of money supply growth at time period 0.

Figures (b) and (c) illustrate the effect of an increased rate of money supply growth at time period T0.

i)If a decline in interest rates is desired, in which case (a, b or c) an increase in money supply growth should be called for? Explain, why?

ii)In which case (a, b or c) a decrease in money growth is appropriate to decrease the interest rateimmediately? Explain, why?

iii)If the policymakers care more about the low interest ratesin the long-run, in which case (a, b or c) a decrease in money growth is appropriate? Explain, why?

5 . Can you think of a reason why people in general do not lend money to one another to buy a house or a car? How would your answer explain the existence of banks?

6 . Suppose a few investors are looking for an investment opportunity that will yield high returns. They are willing to invest in private securities instead of government bonds. However, their analyst found that currently most companies listed on the market and are actively trading in securities are in trouble, which would make them risky investments. What can you conclude from this situation? How would you advise the investors?

7 . Explain the concept of liquidity. Rank the following assets from most liquid to least liquid:

a. Land

b. The inventory of a merchandiser

c. Cash in hand

d. A savings account at a local bank

e. A one-year bond

f. Ordinary shares

8 .Consider a bond with a 6% annual coupon and a face value of $1,000. Complete the following table(show your calculations). What relationships do you observe between years to maturity, yield to maturity, and the current price?Explain.

Years to Maturity Yield to Maturity Current Price

2 4% ?

2 6% ?

3 6% ?

5 4% ?

5 8% ?

9 . The president of the Turkey announces in a press conference that he will fight the higher inflation rate with a new anti-inflation program. Predict what will happen to interest rates if the public believes him.Explain with a graph.

(a) (b) (c) Interest Interest | Interest Rate Rate Rate 12 12 i1 11 Time To Time To 0 Time