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chapters 7 and 8, gross domestic product, U.S. Treasury bond has a 3.5 percent interest rate




Using Excel, complete the following problems from chapters 7 and 8 in the textbook;Chapter 7;1. A small country?s gross domestic product (GDP) is $12 million.;a. If government expenditures amount to $7.5 million and gross;private domestic investment is $5.5 million, what will be the;amount of net exports of goods and services?;3. Personal income amounted to $17 million last year. Personal;current taxes amounted to $4 million, and personal outlays for;consumption expenditures, nonmortgage interest, and so forth were;$12 million.;a. What was the amount of disposable personal income last year?;b. What was the amount of personal saving last year?;c. Calculate personal saving as a percentage of disposable;personal income.;5. The components that comprise a nation?s gross domestic product;(GDP) were identifi ed and discussed in this chapter. Assume the;following accounts and amounts were reported by a nation last year.;Government expenditures (purchases of goods and services) were;$5.5 billion, personal consumption expenditures were $40.5 billion;gross private domestic investment amounted to $20 billion, capital;consumption allowances were $4 billion, personal savings were estimated;at $2 billion, imports of goods and services amounted to $6.5;billion, and the exports of goods and services were $5 billion.;a. Determine the nation?s gross domestic product (GDP).;b. How would your answer change if the dollar amounts of;imports and exports were reversed;7. A nation?s gross domestic product (GDP) is $600 million. Its;personal consumption expenditures are $350 million, and government;expenditures are $100 million. Net exports of goods and;services amount to $50 million.;a. Determine the nation?s gross private domestic investment.;b. If imports exceed exports by $25 million, how would your;answer to (a) change;9. A country in Southeast Asia states its gross domestic product;(GDP) in terms of yen. Assume that last year its GDP was 50 billion;yen when one U.S. dollar could be exchanged for 120 yen.;a. Determine the country?s GDP in terms of U.S. dollars for last;year.;b. Assume the GDP increases to 55 billion yen for this year;while the dollar value of one yen is now $0.01. Determine the;country?s GDP in terms of U.S. dollars for this year.;c. Show how your answer in (b) would change if one U.S. dollar;could be exchanged for 110 yen.;Chapter 8.;3. A ten-year U.S. Treasury bond has a 3.5 percent interest rate, while;an identical maturity corporate bond has a 5.25 percent interest rate.;Real interest rates and infl ation rate expectations would be the same;for the two bonds. If a default risk premium of 1.50 percentage points;is estimated for the corporate bond, determine the liquidity premium for the corporate bond.;5. A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In;contrast, a ten-year Treasury bond has an interest rate of 2.5 percent.;A maturity risk premium (MRP) is estimated to be 0.2 percentage;points for the longer maturity bond. Investors expect infl ation to;average 1.5 percentage points over the next ten years.;a. Estimate the expected real rate of return on the ten-year U.S.;Treasury bond. b. If the real rate of return is expected to be the same for the;thirty-year bond as for the ten-year bond, estimate the average;annual infl ation rate expected by investors over the life of;the thirty-year bond.;7. Infl ation is expected to be 3 percent over the next year. You desire;an annual real rate of return of 2.5 percent on your investments.;a. What nominal rate of interest would have to be offered on a;one-year Treasury security for you to consider making an;investment?;b. A one-year corporate debt security is being offered at 2;percentage points over the one-year Treasury security rate;that meets your requirement in (a). What would be the nominal;interest rate on the corporate security?;11. Assume that the interest rate on a one-year Treasury bill is 6;percent. and the rate on a two-year Treasury note is 7 percent.;a. If the expected real rate of interest is 3 percent, determine the;infl ation premium on the Treasury bill.;b. If the maturity risk premium (MRP) is expected to be zero;determine the infl ation premium on the Treasury note.;c. What is the expected infl ation premium for the second year?;12. A Treasury note with a maturity of four years carries a nominal;rate of interest of 10 percent. In contrast, an eight-year Treasury;bond has a yield of 8 percent.;a. If infl ation is expected to average 7 percent over the fi rst four;years, what is the expected real rate of interest?;b. If the infl ation rate is expected to be 5 percent for the fi rst;year, calculate the average annual rate of infl ation for years 2;through 4.;c. If the maturity risk premium (MRP) is expected to be zero;between the two Treasury securities, what will be the average;annual infl ation rate expected over years 5 through 8?


Paper#30844 | Written in 18-Jul-2015

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