answer them all

1. What are the four key characteristics of fixed income securities

2. Can you explain the four key characteristics of fixed income securities.

3. What are the risks of investing in bonds?

4. A 2-year corporate bond offers a 5% semiannual coupon payment. Can you list the cash flows associated with this bond.

5. Can you define yield to maturity.

6. How do changes in the market YTM affect the value of a bond?

7. How many basis points does the price of a one-year zero coupon bond change when the market YTM increases by 50 basis points from 3% to 3.5%? (It may help your calculations to assume a face value of $100.)

8. When do bonds trade at a premium? When do bonds trade at a discount

The social cost of carbon (SCC) is an estimate of the dollar cost to society of emitting each additional tonne of carbon dioxide equivalent. Assume for now that the SCC is constant at $50 per tonne, and that the marginal abatement cost curve for carbon emissions in Canada is given by

MAC(e) = 200 2e where e is carbon emissions measured in millions of tonnes.

(a) Find the unregulated quantity of carbon emissions. Hint: In the absence of regulation, the price of polluting is zero.

(b) Find the optimal Pigouvian carbon tax and associated socially optimal quantity of carbon emissions.

(c) Calculate the deadweight loss in the unregulated scenario.

(d) Assume the government implements a cap-and-trade program that limits total emissions at 80 percent of the unregulated quantity. Does this policy achieve the optimal quantity of carbon emissions? If not, calculate the deadweight loss associated with this policy (relative to the socially optimal outcome).

(e) Suppose the government completely forbids carbon emission. What would be the deadweight loss under this policy?

(f) Imagine you are writing a proposal for either a carbon tax or cap and trade policy that will begin in five years and you think technical progress will reduce abatement costs by some unknown amount. If your forecasted marginal abatement cost schedule is MAC(e) = 200 2e u where u is an unknown that you believe is greater than zero and less than 100, should you propose a carbon tax or cap and trade policy?

(g) Would your answer to (f) change if the social cost of carbon was increasing in emissions so that the marginal environmental damages are MED(e) = 25 + 3e? Why or why not?

Suppose that a demand curve for a typical FC Barcelona fan is P = 200 - 20G, G represents the number of games the fan attends.

a) If the FC Barcelona want to sell this fan a ticket to five home games, what price must they charge? What are their revenues?

b) Imagine FC Barcelona can perfectly price discriminate. What are the revenues?

c) FC Barcelona want to offer 2 options for their fans, a bundle of two tickets and a bundle of four. What are the prices of 1 ticket in the two bundles?

d) FC Barcelona decided that they want to charge a two-part tariff, a fixed fee for entry and a price per game. If the marginal cost of attendance is $10, what is the optimal fixed fee for the fan?

Problems - You have to show your work. No credit without an explanation (30 marks each).

Suppose the Phillips curve is given by:

U = 10+0.1(p e p ) where U is the unemployment rate in %, p e,p are expected inflation and actual inflation, respectively.

(a) If the unemployment rate drops by 1 percentage point, how much does inflation change by? (6 marks)

(b) If p e = 5%, what are the equilibrium inflation and unemployment rate? (6 marks)

(c) What is the marginal rate of substitution (MRS) between inflation and unemployment of the

country's authorities in equilibrium? (6 marks)

(d) Explain in words what that MRS means. (6 marks)

(e) Are this country's authorities "hard nosed" or "wet" in their preferences relative to authorities with MRS = 4 preferences? (6 marks)