1. What is an estimate of the price of AAA-rated bond that has nine years till maturity, a face value of 1000 dollars, and an APR coupon rate of 2 percent? Assume that the coupon payments are made semi-annually, and that the current market interest rate for AAA-rated, 8-year maturity bonds is 10 percent APR compounded annually. Show your work.

2. What is an estimate of the price of AAA-rated bond that has nine years till maturity, a face value of 1000 dollars, and an APR coupon rate of 14 percent? Assume that the coupon payments are made semi-annually (at the end of each 6 months), and that the current market interest rate for AAA-rated, 9-year maturity bonds is 10 percent APR compounded semi-annually. Show your work.

3. Explain the Babysitting Story. How does this example help us understand monetary economics?

4. Why is hyperinflation so hard to stop?

5. Explain how municipal bonds are different from corporate bonds?

6. Define the following terms: coupon rate, yield, maturity, face value, discount bond, premium bond.

7. Why is there an inverse relationship between seasoned coupon bond prices and yields?

8. Why is the yield and the coupon rate of a brand new issue bond equal?

9. News comes out today that the economy is much weaker than expected. Hence, this changes the expectation of future interest rates. What will happen to U.S. Treasury Bond Prices and Yields today as a result of the news? You will need to use the Mishkin and Eakins (in lecture 6) analysis in your answer and correctly label the graph. (use a screen shot)

10. News comes out today that inflation is greater than expected. Hence, this changes the expectation of future interest rates. What will happen to U.S. Treasury Bond Prices and Yields today as a result of the news? You will need to use the Mishkin and Eakins (in lecture 6) analysis in your answer and correctly label the graph.

11. News comes out today that suggests that the stock market is much more attractive than before (corporate earnings have gone up greatly).What will happen to U.S. Treasury Bond Prices and Yields today as a result of the news? You will need to use the Mishkin and Eakins (in lecture 6) analysis in your answer and correctly label the graph.

12. News comes out today that suggests that the stock market is much less attractive than before (corporate earnings have gone down greatly).What will happen to U.S. Treasury Bond Prices and Yields today as a result of the news? You will need to use the Mishkin and Eakins (in lecture 6) analysis in your answer and correctly label the graph.

13. Why does a flat or downward sloping yield curve usually predict a recession? Explain (This requires a long answer)

14. What type of bonds have more interest rate risk? Why? (also long answer)