Amount invested in both schemes is $45,000
returns in investment g is 75,000 in 6 years.
yearly return is:
75000/6=12,500
returns in investment h is 105,000 in 9 years
yearly return is:
105,000/9
=11,666.67
from the above results we can conclude that investment g has the higher returns.
Answer: a. Inflation
Explanation:
Inflation refers to the general rise in prices of items in an economy in a certain period of time. Inflation essentially erodes the value of the domestic currency of the economy in question.
Central Banks like the Fed can use Monetary policy to influence inflation. In this case they reduced the amount of money in the economy by reducing bank loans. This will ensure that people cannot spend too much which would increase demand and therefore increase prices.
By doing this, they have limited the likelihood of inflation.
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Answer:
Note: <em>The complete question is attached as picture below</em>
1a. The one year spot rate can be calculated using the one year zero bond.
PV * (1 + S1) = FV
1 + S1 = 1000 / 900
S1 = 1.1111 - 1
S1 = 0.1111
S1 = 11.11%
1b. PV of the 2 year bond = $950
Annual coupon = 1000 * 5% = $50
950 = 50 / (1 + S1) + (50 + 1000) / (1 + S2)^2
950 = 50 / 1.1111 + 1,050 / (1 + S2)^2
1,050/ (1 + S2)^2 = 950 - 45 = 905
(1 + S2)^2 = 1050 / 905
1 + S2 = 1.160221/2
S2 = 7.714%
1c. Price of the 2 year zero bond = 1,000 / (1 + 0.07714)^2
Price of the 2 year zero bond = 1,000 / 1.1602
Price of the 2 year zero bond = 861.9203586
Price of the 2 year zero bond = $861.92
