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Kruka [31]
3 years ago
13

The CFO of your firm has asked you for an approximate answer to this​ question: What was the increase in real purchasing power a

ssociated with both​ 3-month Treasury bills and​ 30-year Treasury​ bonds? Assume that the current​ 3-month Treasury bill rate is 4.34 ​percent, the​ 30-year Treasury bond rate is 7.33 ​percent, and the inflation rate is 2.78 percent.​ Also, the chief financial officer wants a short explanation should the​ 3-month real rate turn out to be less than the​ 30-year real rate. The inferred real interest rate of Treasury bills is
Business
1 answer:
nadezda [96]3 years ago
4 0

Answer:

3-month real rate: 1.56%

30 years real rate: 4.42%

Explanation:

We will calcualte the future value of the bond and adjust by inflation:

Principal \: (1+ r)^{time} = Amount

3.months TB:

Principal 100.00

time 1 quarter

rate 0.01085 (4.34% divide into 4 quarter)

100 \: (1+ 0.01085)^{1} = Amount

Amount 101.09

Adjusted for 2.78 annual inflation

\frac{Nominal}{(1 + inflation)^{time} } = PV  

Nominal 101.09

time   1 quarter

Inflation 0.0278/4 =  0,00695

\frac{101.085}{(1 + 0.00695)^{1} } = PV  

PV   100.39

100.39 / 100 - 1 = 0.39% quarterly rate:

0.39 x 4 = 1.56% real rate.

Because the time is low and difference in rate is lower there is no subtancial difference between the accurate method and the simplier method : nominal - inflation = 4.34 - 2.78 = 1.56

Now we do the same for the 30 years TB

Principal \: (1+ r)^{time} = Amount

Principal 100.00

time 30.00

rate 0.07330

100 \: (1+ 0.0733)^{30} = Amount

Amount 834.90

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity  834.90

time   30.00

rate   0.0278

\frac{834.898884531252}{(1 + 0.0278)^{30} } = PV  

PV   366.75

now we calculate the rate:

30√366.75/100 -  1 =  0.04427   = 4.42%

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If there is a recessionary gap in the short​ run, the Federal Reserve can eliminate the gap in the short run by undertaking a po
NeTakaya

Answer:

D. harms the society by interfering with the economy's natural process.

Explanation:

In order to get out of recession, the fed should reduce the tax rates, which would in return lead to higher disposable income of the consumers, and then there will be an increase in the demand.

On the other hand the sale of bonds would even further increase the recession, as there will be more cash crunch in the economy. A decrease in reserve ratio will be a long time taking solution, so it would not provide an immediate solution.

MCQ

But, if the fed interferes with the short run equilibrium in the hope of giving short run benefits, it will hamper the economy's natural process to attain a new equilibrium as discussed in the paragraph above. Hence, option D is the correct answer

Option A and C are incorrect, because, employment is not much affected with lowering of income tax. On, the other hand, inflation levels rise, when there is a cut in income tax, as it gives more currency in the economy, hence even C is incorrect.

6 0
3 years ago
A furniture company using accrual accounting purchased 20 sofas in November 2011. In December 2011, 8 of the 20 sofas were sold
kvasek [131]

Answer:

November 2011

Explanation:

Based on the information given if the company purchased 20 sofas in the month of November 2011 in which the company paid the amount of $3,000 for an advert that ran in the local newspaper in the same month of November 2011 which simply means that the month in which the advertising costs should be expensed is the month of NOVEMBER 2011 which is the month the company paid the amount of $3,000 for advertising in the local newspaper.

6 0
3 years ago
The Higgins Company has just purchased a piece of equipment at a cost of $120,000. This equipment will reduce operating costs by
Maru [420]

Answer:

B. 2.8 years

Explanation:

Initial investment = -120,000+ 8,000 = -112,000

Yr 1 cash inflow = 40,000, hence net CF = 40,000-112,000 = -72,000

Yr 2 cash inflow = 40,000, hence net CF = 40,000- 72,000 = -32,000

Yr 3 cash inflow = 40,000, hence net CF = 40,000-32,000 = 12,000

Payback period = last year with negative net CF + (absolute net CF that year/ total CF the following year)

= 2 + (32,000/40,000)

= 2 + 0.8

= 2.8 years

3 0
3 years ago
A lot of points give away
abruzzese [7]

Answer:

Assertion: When radius of a circular wire carrying current is doubled, its magnetic moment becomes four times.

Reason: Magnetic moment depends on area of the loop.

(a)A

(c) C (d) D

(b) B

4 0
2 years ago
Suppose a wet and sunny year increases the nation's sweetcorn crop by 20%. How will this affect the market for frozen peas,a sub
Soloha48 [4]

Answer:

d) decease in demand

Explanation:

When the produce of sweet corn crop rises by 20%, this would lead to an increase in supply. With increase in supply, the price of sweet corn shall fall, which would lead to an increase in demand as now consumers will consume more of sweet corn.

Since the relationship between price of a good and demand for it's substitute is positive, the demand for the substitute shall fall.

Thus, demand for frozen peas shall decrease as demand for sweet corn has increased.

5 0
3 years ago
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