Question

1.Multiple discount rates for a bond and show how the spot rates are determined 2.What is...

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.

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Homework Answers

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.

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