Michelle_Perez_ADCO5190_CH1_P08 4/2/2003 Chapter 1. Ch 01 P08 Build a Model a. Suppose you are considering two possible investment opportunities‚ a 12-year Treasury bond and a 7-year‚ A-rated corporate bond. The current real risk-free rate is 4%. Inflation is expected to be 2% for the next two years‚ 3% for the following four years‚ and 4% thereafter. The maturity risk premium is estimated by this formula:MRP = 0.1% ( t-1) %. The liquidity premium for the corporate bond is estimated to
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The term structure of interest rates‚ also known as the yield curve‚ is a very common bond valuation method. Constructed by graphing the yield to maturities and the respective maturity dates of benchmark fixed-income securities‚ the yield curve is a measure of the market’s expectations of future interest rates given the current market conditions. Treasuries‚ issued by the federal government‚ are considered risk-free‚ and as such‚ their yields are often used as the benchmarks for fixed-income securities
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short-run marginal cost curve is generally U-shaped‚ reflecting the law of diminishing marginal returns. Also‚ the marginal cost curve intersects both the average total cost and average variable cost curves at their lowest points. The long-run average total cost curve shows the minimum cost per unit of producing each output level when we can construct any desired size of a factory. Economies of scale and diseconomies of scale account for the U-shaped appearance of this cost curve. In discussing the
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CHAPTER 9—PERFECT COMPETITION HOME WORK 1. Market structure is determined by the a. volume of discounts‚ the quantity of foreign exchange‚ and the effects of Federal Reserve policy b. influence of government policy‚ the number of qualified buyers‚ and the effect of generally accepted accounting principles c. number of buyers and sellers‚ whether the product is standardized‚ whether there is free entry and exit‚ and how well informed the buyers and sellers are about the market d.
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Treasury yield curve is obtained from the prices of Treasury strips. Strips are essentially zero-coupon bonds which are traded for a variety of maturities. From the strip prices‚ you can directly obtain the yield curve. The spot rates are what are used to discount the future cash flows of bonds. Any coupon bond can be engineered from a portfolio of zero-coupon bonds. The yield on a zero-coupon bond is called a spot rate; the yield curve that consists of spot rates is called the spot rate curve. 4
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Teaching Notes Now we step back from supply and demand analysis to gain a deeper understanding of what lies behind the supply and demand curves. It will help students understand where the course is heading if you explain that this chapter builds the foundation for deriving demand curves in Chapter 4‚ and that you will do the same for supply curves later in the course (beginning in Chapter 6). It is important to explain that economists approach behavior somewhat differently than‚ say‚ psychologists
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from http://www.asiaone.com/News/AsiaOne%2BNews/Singapore/Story/A1Story20081031-97438.html Atkeson‚ A.‚ Ohanian L Burda‚ M. and C. Wyplosz‚ (2001).Macroeconomics. Oxford University Press‚ New York‚ pp: 281-284. Bhanthumnavin‚ K. (2002). The Phillips curve in Thailand. Gorman Workshop Series. University of Oxford‚ pp: 3-4 Dornbusch‚ R.‚ S Friedman‚ M.‚ (1968). The Role of Monetary Policy. American Economic Review‚ 58: 1-17. Haydam‚ N.‚ (2002). The Principles of Macroeconomics. Van Schaik‚ Pretoria‚ pp:
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Lectures On Intermediate Microeconomics Kotut c Samwel‚ M. Phil (Economics) Moi University. Chapter one 1.0 Introduction Economics is the science of scarce resource allocation to meet endless human desires. The modern economics science has two major branches i.e. Micro-economics and Macro-economics. Compared to micro-economics Macro-economics is a younger branch of economics. Until the economic depression of 1930s economics was limited to what is
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(Marginal Rate of Substitution) Slope of indifference curve= the amount of a product that must be substitute for another if utility is to remain unchanged. The ratio is the marginal rate of substitution. The MRS is the slope of the indifference curve at a certain point. I spend my money on the product that gave the most marginal utility. Ex: How much X do I have to give to get an extra unit of Y ? Example of indifference curves= If my MRS does not depend on
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or old firms exit the market‚ and (d) the ways in which firms in the industry compete with each othersuch as through prices or advertising. 2. (Demand Under Perfect Competition) What type of demand curve does a perfectly competitive firm face Why The perfectly competitive firm faces a demand curve that is horizontal at the prevailing market price. This is the result of firms in the industry producing a commodity. No individual firm would want to raise its price above its competitors priceswhich
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