Question
1. What determines the price of financial instruments? Which are riskier, capital market instruments or money market instruments? Why? 2. An insurance company is trying
1. What determines the price of financial instruments? Which are riskier, capital market instruments or money market instruments? Why?
2. An insurance company is trying to sell you a retirement annuity. The annuity will give you 20 payments with the first payment in 12 years when you retire. The insurance firm is asking you to pay $50,000 today. If this is a fair deal, what must the payment amount be (to the dollar) if the interest rate is 8%?
3. Upon graduating from college this year you expect to earn $25,000 per year. If you get your MBA, in one year you can expect to start at $35,000 per year. Over the year, inflation is expected to be 5%. In today's dollars, how much additional (less) money will you make from getting your MBA (to the nearest dollar) in your first year?
4. What is the difference between the expected real interest rate and the real rate of interest actually earned?
5. A 10-year annual payment corporate bond has a market price of $1,050. It pays annual interest of $100 and its required rate of return is 9%. By how much is the bond mispriced?
6. An 8-year corporate bond has a 7% coupon rate. What should be the bond's price if the required return is 6% and the bond pays interest semiannually?
7. What are the four major functions of the Federal Reserve System?
8. What are the main responsibilities of the FOMC?
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