W1

Question 1

consol def & formula

Answer 1

bond with no maturity
PV=C/[i_c]

Question 2

simple loan formula

Answer 2

PV=F/[(1+i)^n]

Question 3

fixed payment loan

Answer 3

PV=FP/[(1+i)^1] + … + FP/[(1+i)^n]

Question 4

coupon bond

Answer 4

PV=C/[(1+i)^1] + … + C/[(1+i)^n]
C=coupon rate * par value coupon payment

Question 5

discount (zero-coupon) bond

Answer 5

PV=F/(1+i)

Question 6

three facts about relation between coupon bond and YTM

Answer 6

1. YTM=coupon rate, when coupon bond is priced at its FV
2. YTM and price of bond are negatively related
3. When bond price is below FV, YTM > coupon rate

Question 7

Rate of Expected Return formula

Answer 7

RET = i_c + g^e

Question 8

Prices & returns of long-term bonds are more volative than that of short-term bondscted Return formula

Question 9

Fisher equation

Answer 9

i_n =i_r + π

Question 10

Determinants of asset demand

Answer 10

1. Wealth
2. Expected return
3. Risk
4. Liquidity

Question 11

Determinants of bond supply

Answer 11

1. Expected profitability of investment oppertunities
2. Expected inflation
3. Government deficit
4. Interest rate and business cycle

Question 12

Shift along curve: ∆Q as a result of ∆P
Shift of curve: ∆Q at given P