integrative problem
... 2) You own a bond that pays $100 in interest annually, has a par value of $1000, and matures in 15 years. What is the value of the bond if your required rate of return is 12%? What is the value of the bond if your required rate of return (a) increases to 15% or (b) decreases to 8%? Now, recompute al ...
... 2) You own a bond that pays $100 in interest annually, has a par value of $1000, and matures in 15 years. What is the value of the bond if your required rate of return is 12%? What is the value of the bond if your required rate of return (a) increases to 15% or (b) decreases to 8%? Now, recompute al ...
NBER WORKING PAPER SERIES THE LONG SLUMP Robert E. Hall Working Paper 16741
... invest directly in productive enterprises. They place their funds with intermediaries who will abscond with some fraction of the funds unless their continuation values exceed the value of absconding. In equilibrium, the intermediary charges entrepreneurs more for credit than the amount paid to inves ...
... invest directly in productive enterprises. They place their funds with intermediaries who will abscond with some fraction of the funds unless their continuation values exceed the value of absconding. In equilibrium, the intermediary charges entrepreneurs more for credit than the amount paid to inves ...
Chapter 4 (1 spp) - N. Meltem Daysal
... A. Money Supply; as described before B. Money Demand; a new definition • The Quantity Theory of Money assumes that the demand for real money balances depends only on real income Y. • We now consider another determinant of money demand: the nominal interest rate. • The nominal interest rate i is the ...
... A. Money Supply; as described before B. Money Demand; a new definition • The Quantity Theory of Money assumes that the demand for real money balances depends only on real income Y. • We now consider another determinant of money demand: the nominal interest rate. • The nominal interest rate i is the ...
Sustainable growth and financial markets in a natural resource rich
... Angola, which is one of the first oil producer of Africa has to deal with an external debt of 22,170 billion of US dollar, and Brazil had a debt of 440,478 billion of US dollar in 2012. In this paper, we shall investigate whether a natural resource dependent country with an external debt can achieve ...
... Angola, which is one of the first oil producer of Africa has to deal with an external debt of 22,170 billion of US dollar, and Brazil had a debt of 440,478 billion of US dollar in 2012. In this paper, we shall investigate whether a natural resource dependent country with an external debt can achieve ...
A Summary of the Primary Causes of the Housing Bubble and the
... payment requirements and income requirements. Historically, mortgages taken out by lower-income households often did not conform to these strict standards. Beginning in 1996 the Department of Housing and Urban Development began to increase the percentage of mortgage loans to lower-income households ...
... payment requirements and income requirements. Historically, mortgages taken out by lower-income households often did not conform to these strict standards. Beginning in 1996 the Department of Housing and Urban Development began to increase the percentage of mortgage loans to lower-income households ...
Country spreads and emerging countries: Who drives whom?
... economy is hit by a positive productivity shock. In response to this innovation, output, investment, and consumption will tend to expand. Assume in addition that the country spread is a decreasing function of the level of economic activity. Then the productivity shock would also be associated with a ...
... economy is hit by a positive productivity shock. In response to this innovation, output, investment, and consumption will tend to expand. Assume in addition that the country spread is a decreasing function of the level of economic activity. Then the productivity shock would also be associated with a ...
The Power of Forward Guidance Revisited
... of consumption to the shock is therefore quite large and gets larger the further in the future the interest rate shocks occurs. It is the cumulative response of consumption (with some discounting) that determines the response of current inflation in the basic New Keynesian model. So, the further in ...
... of consumption to the shock is therefore quite large and gets larger the further in the future the interest rate shocks occurs. It is the cumulative response of consumption (with some discounting) that determines the response of current inflation in the basic New Keynesian model. So, the further in ...
Assessing the risk-return trade-off in loans
... maximum yield that can be obtained, which is rk . Hence, risk is always undesirable in this setting since it implies receiving a smaller return than the require rate. This is an interesting difference with equity return distributions, in which positive extreme returns may also occur. Nevertheless, th ...
... maximum yield that can be obtained, which is rk . Hence, risk is always undesirable in this setting since it implies receiving a smaller return than the require rate. This is an interesting difference with equity return distributions, in which positive extreme returns may also occur. Nevertheless, th ...
Bond Valuation_Ch11
... Expected Return • Used by investors who expect to actively trade in and out of bonds rather than hold until maturity date • Similar to yield-to-maturity • Uses estimated market price of bond at expected sale date instead of the par value ...
... Expected Return • Used by investors who expect to actively trade in and out of bonds rather than hold until maturity date • Similar to yield-to-maturity • Uses estimated market price of bond at expected sale date instead of the par value ...
THE SUB-PRIME MORTGAGE MESS Kevin M. Bahr, Ph.D
... makes a loan to a homebuyer. This mortgage is sold to an underwriter, such as an investment banking firm, who in turn buys more mortgages. The entire mortgage pool is split into several slices through the issuance of mortgage-backed securities, with the securities divided into different categories ( ...
... makes a loan to a homebuyer. This mortgage is sold to an underwriter, such as an investment banking firm, who in turn buys more mortgages. The entire mortgage pool is split into several slices through the issuance of mortgage-backed securities, with the securities divided into different categories ( ...
Defaultable Debt, Interest Rates, and the Current Account
... and the current account. This is because, on the one hand, an increase in borrowing in good states (countercyclical current account) will, all else being equal, imply a movement along the heuristic ``loan supply curveʹʹ and a sharp rise in the interest rate. On the other hand, if the good state i ...
... and the current account. This is because, on the one hand, an increase in borrowing in good states (countercyclical current account) will, all else being equal, imply a movement along the heuristic ``loan supply curveʹʹ and a sharp rise in the interest rate. On the other hand, if the good state i ...
Monetary Policy Lessons from the 1990s for Today
... the index appear to be temporarily low. One should be suspicious of such “nonmonetary” explanations of inflation given the evidence—like that from monetary policy in the 1990s—that inflation dynamics are heavily influenced by central bank behavior as perceived by the public. On balance, there is goo ...
... the index appear to be temporarily low. One should be suspicious of such “nonmonetary” explanations of inflation given the evidence—like that from monetary policy in the 1990s—that inflation dynamics are heavily influenced by central bank behavior as perceived by the public. On balance, there is goo ...
The Bank of Japan's Experience with Non-Traditional Monetary Policy* Kazuo Ueda
... interactions among declining asset prices, increasingly dysfunctional financial system and deteriorating real economy. The rate of inflation of CPI also fell below 1% by 1994. In response to such developments the BOJ cut the overnight interest rate to below 0.5% already in the summer of 1995, from t ...
... interactions among declining asset prices, increasingly dysfunctional financial system and deteriorating real economy. The rate of inflation of CPI also fell below 1% by 1994. In response to such developments the BOJ cut the overnight interest rate to below 0.5% already in the summer of 1995, from t ...
The long term equilibrium interest rate and risk premiums under
... whereas in climate related problems, the investments made today will only benefit generations far into the future. With an expected per capita growth of 1.1-1.2 per cent in a 200 year perspective, as assumed in the Stern report, it has been argued that mitigation will not be a natural conclusion fo ...
... whereas in climate related problems, the investments made today will only benefit generations far into the future. With an expected per capita growth of 1.1-1.2 per cent in a 200 year perspective, as assumed in the Stern report, it has been argued that mitigation will not be a natural conclusion fo ...
Interest Rates and Aggregate Corporate Investment
... aggregate corporate investment is found higher, contradicting the theoretical framework used by the Riksbank. As a potential explanation they present the possibility of interest rates and aggregate corporate investment both being driven by expectations of future economic activity. In the literature ...
... aggregate corporate investment is found higher, contradicting the theoretical framework used by the Riksbank. As a potential explanation they present the possibility of interest rates and aggregate corporate investment both being driven by expectations of future economic activity. In the literature ...
Credit History and the Performance of Prime and Nonprime Mortgages
... mortgages from two national secondary market participants. The interest rate at origination is used to identify which loans should be characterized as nonprime. Loans are categorized as high interest rate if the contract rate at origination is 100 basis points greater than the monthly rate reported ...
... mortgages from two national secondary market participants. The interest rate at origination is used to identify which loans should be characterized as nonprime. Loans are categorized as high interest rate if the contract rate at origination is 100 basis points greater than the monthly rate reported ...
FM10 Ch 5 - Bryon Gaskin
... Some argue that the PEH isn’t correct, because securities of different maturities have different risk. General view (supported by most evidence) is that lenders prefer S-T securities, and view L-T securities as riskier. Thus, investors demand a MRP to get them to hold L-T securities (i.e., MRP ...
... Some argue that the PEH isn’t correct, because securities of different maturities have different risk. General view (supported by most evidence) is that lenders prefer S-T securities, and view L-T securities as riskier. Thus, investors demand a MRP to get them to hold L-T securities (i.e., MRP ...
Chapter 7: The Demand for Money
... Suppose, on the other hand, the interest rate rose temporarily to 11%. Then the Joneses and others would find the cost of holding money had risen, and they would want to reduce their money balances in order to hold more of their assets in the form of bonds. As the Joneses and others try to purchase ...
... Suppose, on the other hand, the interest rate rose temporarily to 11%. Then the Joneses and others would find the cost of holding money had risen, and they would want to reduce their money balances in order to hold more of their assets in the form of bonds. As the Joneses and others try to purchase ...
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... rates. Because the substitution effect is strictly negative under strict quasi-concavity, real money balances decline in period t* and in each period thereafter. v) With lifetime incomes and real interest rates unchanged and with utility separable in real money balances (marginal rates of substituti ...
... rates. Because the substitution effect is strictly negative under strict quasi-concavity, real money balances decline in period t* and in each period thereafter. v) With lifetime incomes and real interest rates unchanged and with utility separable in real money balances (marginal rates of substituti ...
Could A S y m p o S i...
... a loosening of policy in response to incoming data. To work through this problem, the Federal Open Market Committee has traditionally endeavored not to position itself too far off “center court,” following a monetary policy that neither runs too much in the restrictive direction or too far in the ac ...
... a loosening of policy in response to incoming data. To work through this problem, the Federal Open Market Committee has traditionally endeavored not to position itself too far off “center court,” following a monetary policy that neither runs too much in the restrictive direction or too far in the ac ...
Interest
Interest is money paid by a borrower to a lender for a credit or a similar liability. Important examples are bond yields, interest paid for bank loans, and returns on savings. Interest differs from profit in that it is paid to a lender, whereas profit is paid to an owner. In economics, the various forms of credit are also referred to as loanable funds.When money is borrowed, interest is typically calculated as a percentage of the principal, the amount owed to the lender. The percentage of the principal that is paid over a certain period of time (typically a year) is called the interest rate. Interest rates are market prices which are determined by supply and demand. They are generally positive because loanable funds are scarce.Interest is often compounded, which means that interest is earned on prior interest in addition to the principal. The total amount of debt grows exponentially, and its mathematical study led to the discovery of the number e. In practice, interest is most often calculated on a daily, monthly, or yearly basis, and its impact is influenced greatly by its compounding rate.