1) a) I purchased a one-year bond that will pay me $1,000 a year from today. The
ID: 1216914 • Letter: 1
Question
1) a) I purchased a one-year bond that will pay me $1,000 a year from today. The bond costs $700. What is the yield? _________________ b) I purchased a share of Apple Computer stock for $20.00. Since then, the share has risen in price to $22.00 and Apple has paid a dividend of $1.00. - What is the capital gain as a percentage of the purchase price? _________________ - What is the dividend as a percentage of the purchase price? _________________ -Add together your answer to the previous two questions to find the rate of return on the share of stock. _________________ c) Given the following information: GDP $1,000 Government Spending $300 Taxes $250 Consumption $500 Net Exports 0 - What is private saving? _________________ - What is public saving? _________________ - What is national saving? _________________ - What is investment? _________________ d) How much must you set aside today in order to have $100 two years from now when the interest rate is 12%? ______________ e) The firm has an opportunity to make an investment whose cost is $100. The only reward from the investment is the $107 (in real terms) the firm expects to make one year from today. Should the firm make the investment if, in order to finance the investment, it must borrow at a real interest rate of: 10% ? ______________ 5% ? ______________Explanation / Answer
1) a) I purchased a one-year bond that will pay me $1,000 a year from today. The bond costs $700. What is the yield? 42.86%_________________ b) I purchased a share of Apple Computer stock for $20.00. Since then, the share has risen in price to $22.00 and Apple has paid a dividend of $1.00. - What is the capital gain as a percentage of the purchase price? _10%________________ - What is the dividend as a percentage of the purchase price? 5%_________________ -Add together your answer to the previous two questions to find the rate of return on the share of stock. ___________15%______ c) Given the following information: GDP $1,000 Government Spending $300 Taxes $250 Consumption $500 Net Exports 0 - What is private saving? $250 _________________ - What is public saving?(-$50) _________________ - What is national saving? $200 _________________ - What is investment? $200_________________ d) How much must you set aside today in order to have $100 two years from now when the interest rate is 12%? $79.72______________
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