1/ The highest U.S. dollar denomination, the $100 bill, trades at a significant premium in many emerging markets." Why might people in these countries wish to use U.S. currencies rather than the currencies issued by their governments? Why might their demand for $100 bills be greater than their demand for lower-denomination bills?

2/ What is the "blockchain" technology? Is it likely to lead to the United States becoming a "cashless society"? Briefly explain.

3/ In Sweden, some banks have closed their ATMs, no longer allow depositors to make cash withdrawals in person at branches, and no longer accept cash deposits.

What are the benefits to a bank from taking these actions? What are the costs?

How might a bank measure the costs and benefits in making a decision about whether to go cashless?

4/ If you ask someone who hasn't taken a course in economics to define the money supply, he or she is likely to say something like: "The money supply equals the total amount of paper currency and coins in circulation." Why does the Fed include more than just currency in M1, its narrow definition of the money supply?

5/ How does a high rate of inflation affect the value of money? How does it affect the usefulness of money as a medium of exchange?

6/ In 1919, the British economist John Maynard Keynes wrote the influential book The Economic Consequences of the Peace, in which he argued that the reparations for World War I that Germany was being forced to pay to the United States, France, Italy, and the United Kingdom would have devastating consequences: "But who can say how much is endurable, or in what direction men will seek at last to escape from their misfortunes?" What is the connection between the war reparations that Germany was forced to pay and the later hyperinflation? Why might hyperinflation lead to political unrest?

7/ Suppose that you are considering investing $1,000 in bank CDs.

First, you consider one of the following CDs:

CD 1, which will pay an interest rate of 5% per year for three years

CD 2, which will pay an interest rate of 8% the first year, 5% the second year, and 3% the third year

Which CD should you choose?

Would your answer to part (a) change if the second CD pays an interest rate of 1% the first two years and 10% in the third year? Briefly explain.

Now, suppose that in addition to the two CDs described in part (a), there is a third CD that pays an interest rate of 3% the first two years and an interest rate of 7% the third year. How does the future value of this investment compare to the other two? Which is the best investment?

8/ In 2015, the Washington Nationals baseball team signed pitcher Max Scherzer to a contract to play for the team for 7 years. He would be paid $15 million dollars per year for 14 yearsan additional 7 years beyond the end of the time he would be committed to play for the Nationals. The contract was widely reported as being worth $210 million (or $15 million per year 14 years). One baseball writer argued, though, that "this deal serves as a nice reminder that the payment terms of a deal can have an impact on the actual value of the contract."

What does the writer mean by the "actual value of the contract"? Isn't $210 million the actual value of the contract? Briefly explain.

The writer notes: "For a lot of reasons, money today is worth more than money in the future, and the further in the future you go, the less money is worth." What are the reasons that money today is worth more than money in the future? Briefly explain how we calculate the value today of money we will receive in the future.

Assume for simplicity that Scherzer receives his salary of $15 million per year for 2018, 2019, and 2020 at the end of each calendar year. At the beginning of 2018, what is the present value of the salaries he will receive for these three years? Use an interest rate of 7% in your calculation.

9/ Why do consumers usually prefer fixed-payment loans to simple loans when buying cars and houses?

10/ A certified financial planner notes that with an unsubsidized student loan, the borrower has the choice of whether to make interest payments on the loan while still in college. She advises that making the interest payments rather than postponing them until after graduation is "always to your financial benefit ... because otherwise [the interest payments] will capitalize."

What does the financial planner mean when noting that the interest payments will "capitalize"?

Why does she believe that making the payments would be to your financial benefit? Are there good reasons some students decide to postpone making the interest payments until after they graduate? Briefly explain.

11/ Suppose that you are considering subscribing to Economist Analyst Today magazine. The magazine is advertising a one-year subscription for $60 or a two-year subscription for $115. You plan to keep getting the magazine for at least two years. The advertisement notes that a two-year subscription saves you $5 compared to buying two successive one-year subscriptions. If the interest rate is 10%, should you subscribe for one year or for two years? (Assume that one year from now, a one-year subscription will still cost $60.)

12/ Consider a $1,000 face value bond that sells for an initial price of $450. It will pay no coupons for the first 10 years and will then pay a 6.25% coupon each year for the remaining 20 years. Write an equation that shows the relationship between the price of the bond, the coupon (in dollars), and the yield to maturity. You don't have to show every term in the expression, but be sure to show enough terms to demonstrate that you understand the relationship.

13/ Briefly explain whether you agree with the following statement:

If interest rates rise, bonds become more attractive to investors, so bond prices will rise. Therefore, when interest rates rise, bond prices will also rise.

14/ A column in the New York Times noted that during the housing boom that ended in 2006: "Global banks had loaded up on these supposedly safe securities, and were at risk of becoming insolvent when their true value became known. Some banks blew up; others were bailed out."

Which securities is the columnist referring to?

What caused the value of these securities to decline?

Why did this result cause problems for banks?

15/ Suppose that for a price of $950, you purchase a 10-year Treasury bond that has a face value of $1,000 and a coupon rate of 4%. If you sell the bond one year later for $1,150, what was your rate of return for that one-year holding period?

16/ Suppose that you just bought a four-year $1,000 coupon bond with a coupon rate of 6% when the market interest rate is 6%. One year later, the market interest rate falls to 4%. What rate of return did you earn on the bond during the year?

16/ Suppose that on January 1, 2018, the price of a one-year Treasury bill is $970.87. Investors expect that the inflation rate will be 2% during 2018, but at the end of the year, the inflation rate turns out to have been 1%. What are the nominal interest rate on the bill (measured as the yield to maturity), the expected real interest rate, and the real interest rate?