u s financial systems markets and institutions assignment

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ASSIGNMENT TWO

1. Suppose that I receive a payment of $200,000 in three years. If interest rates are 4%, then what is the present value today of the future payment?

2. A simple discount bond pays $10,000 in one year. Find the yield to maturity when the price of the bond is

i. $9,800
ii. $9,900
iii. $10,000

What happens to the yield to maturity as the price of the bond increases?

3. How much would investors be willing to pay for a perpetuity that pays $60,000 per year if interest rates are 5%?

4.Using supply and demand graphs for both the bond market and the loanable funds market, show the effects of a decrease in the expected return on stocks.How does this apply to recent events in US financial markets?

5.The second installment from Bernanke’s lecture series can be viewed at:

http://www.federalreserve.gov/newsevents/lectures/the-Federal-Reserve-after-World-War-II.htm

After viewing the video, please answer the following questions:

a.How did the Fed help to finance World War Two?Why did this lead to the Treasury Accord of 1951?

b.What was the basic monetary policy stance of the Fed in the 1950s and 1960s?

c.What factors contributed to inflation in the 1970s?

d.How was monetary policy changed under Paul Volcker?

e.What was the “Great Moderation”?

f.What were some of the “initiating triggering events” of the financial crisis of 2008?

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