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1. Use Excel or any other suitable computer program to answer the following question. Suppose a company is thinking of investing $1,000,000 today into
1. Use Excel or any other suitable computer program to answer the following question. Suppose a company is thinking of investing $1,000,000 today into a project that is expected to bring profits equal to $200,000 during each of the next 10 years. Would a company be willing to implement the project if the interest rate is 5%? 10%? 20% per year? Give a numerical explanation and explain intuition. 2. Suppose the government wants to borrow money to cover its budget deficit. It sells a zero- coupon bond with a face value of $1000 a year from now for $950 today. a. What is the yield (the interest rate) on that bond? b. Suppose that an hour after the government sells the bond the market interest rate changes to 10%. What is the price of the bond now? C. Based on this example, explain how bond prices and interest rates are related to each other.
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