Question

1.Multiple discount rates for a bond and show how the spot rates
are

determined

2.What is money?

3.The results of the Fed buying treasury securities from the public on the financial balance sheets of the parties.

Answer #1

ANSWER 1

Difference between Market Price and Face value of Bond is Discount on bond.

Bond can be issued at PAR, Premium, Or at Discount.

Bond is Sold at PAR when prevailing interest rates are same as of market interest Rates.

Bond is sold on PREMIUM when bond rates are higher from market rates.

Bond is Sold at discount when market rates are high.

FORMULA TO DETERMINE SPOT RATES

Spot Rate = Forward Price/(1+r)^t

r = Interest rate

t = time

ANSWER 2

Money is anything which is widely acceptable in exchange of goods and services.

It serves three main function, it is medium of exchange, unit of account and store of value.

ANSWER 3

Effect of FED buying Treasury security from Public on its balance sheet is that it will reduce the liability of FED.

How are bond prices determined in the market? What is the
relationship between interest rates and bond prices?

2. What is the difference between a discount yield and a bond
equivalent yield? Which yield is used for Treasury bill quotes?
11. What is the difference between a repurchase agreement and a
reverse repurchase agreement?
18. Who are the major issuers of and investors in money market
securities?
7. You can purchase a T-bill that is 95 days from maturity for
$9,965. The T-bill has a face value of $10,000.
Calculate the T-bill’s quoted yield.
Calculate the T-bill’s bond...

Suppose in the Wall Street Journal you see the following
current (spot) interest rates for Treasury bonds with an upward
sloping yield curve:
5-year
bond rate =1.45%; 10-year bond rate =
2.13%
a. Under the expectations theory, what is the expected
5-year bond rate (forward rate) 5 years from now? Based on your
answer, what are rates expected to do (rise/fall/stay the same)?
Explain why
Expected 5-year bond rate 5 years from now =
_________________
(Be sure to show your...

Suppose that the current 1-year rate (1-year spot rate) and
expected 1-year T-bill rates over the following three years (i.e.,
years 2, 3, and 4, respectively) are as follows:
1R1 = 6%,
E(2r1) = 7%,
E(3r1) = 7.60%,
E(4r1) = 7.95%
Using the unbiased expectations theory, calculate the current
(long-term) rates for 1-, 2-, 3-, and 4-year-maturity Treasury
securities. (Round your answers to 2 decimal
places.)

1.Calculate the forward discount (or premium) for the following
spot and three-month forward rates:
1)S = $2/£1 and F = $2.01/£1
2) S = $2/£1 and F = $1.96/£1
2.What would happen to the dollar/peso exchange rate if the
interest rate increased in the US but remained unchanged in Mexico?
Explain using the graph.

Assume that all interest rates (i.e. discount rates) in the
economy rise from 2% to 5%. Which of the following bonds is the
most sensitive to the change in interest rates? (Show the work
leading to your answer) a. A 1-year bond with 10% coupon rate b. A
6-year bond with 5% coupon rate c. A 10-year zero-coupon bond d. A
20-year 5% coupon bond

Provide a brief explanation or show work
1. In the United States, the money supply is
determined:
a. only by the Fed. b. only by the behavior of individuals who
hold money and of banks in which money is held. c. jointly by the
Fed and by the behavior of individuals who hold money and of banks
in which money is held. d. according to a constant-growth-rate
rule
2. In a 100-percent-reserve banking system, if a
customer deposits $100 of...

8. Explain the effect of each of the following scenarios
on money supply: (You need to say if money supply increases or
decreases and also how)
a. When the Fed buys treasury bonds from the public
b. When the Fed decides to ease on banks by lowering the
reserve-requirements:
c. When the Fed decides to pay interest on excess reserves of
banks:
d. When the Fed sells treasury bonds to the public e.When the
Fed raises the discount rates
9....

Provide a brief explanation or show work
5. The ratio of the money supply to the monetary base is
called:
a. the currency–deposit ratio. b. the reserve–deposit ratio. c.
high-powered money. d. the money multiplier.
6. When the Fed makes an open-market sale,
it:
a. increases the money multiplier (m). b. increases the
currency–deposit ratio (cr). c. increases the monetary base (B). d.
decreases the monetary base (B).
7. Suppose the banking system currently has $400 billion
in reserves, the...

Suppose that the current 1-year rate (1-year spot rate) and
expected 1-year T-bill rates over the following three years (i.e.,
years 2, 3, and 4, respectively) are as follows: 1R1 = 1%, E(2r1) =
4.25%, E(3r1) = 4.75%, E(4r1) = 6.25% Using the unbiased
expectations theory, calculate the current (longterm) rates for 1-,
2-, 3-, and 4-year-maturity Treasury securities. Plot the resulting
yield curve. (Do not round intermediate calculations. Round your
answers to 2 decimal places.)

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