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Question;Q1: How do you value a college educationQ2: Should you worry about falling bond price when the inflation rate is low?Q3: Should you pay attention to the advice of investment analyst?full assignment attached below.;Econ 3020H Fall 2014;Assignment Due: November 24th;Q.1;How do you value a college education;According;to Statistics Canada?s current population survey, at age 22, the typical;college graduate makes about $7,200 more per year than does the typical high;school graduate who has not attended college. The earnings gap between high;school graduates and college graduates grows until about age 42.;Consider the following data on the;gap between earnings by college graduates and high school graduates (for the;sake of simplicity, suppose that the additional income received by a college;graduate is all received at the end of the year);Age 22: $7,200;Age 23: $7,200;Age 24: $7,300;Age 25: $7,300;a);Considering just ages 22 to 25, what is the percent value;of a college education? Assume an interest rate of 5%;b);Suppose you are 18 years old and considering whether to;enter the labor force by taking a job immediately after graduating from high;school or to attend college and enter the labor force at age 22. Briefly;explain how you might calculate the percent value for you of a college;education;Q.2;Should you worry about falling bond prices;when the inflation rate is low?;A columnist in the wall street;journal offered the following opinion of the bond market in September 2012;when the inflation rate was about 2%: ? some-one buying long-term;bonds yielding 1.5% or 2%, and then;seeing consumer price inflation of 4%, will be on;the losing end of the bet.?;a);Explain what will happen to the price of bonds if the;expected inflation rate increases to 4% from 2%. Be sure to include in your;answer a demand and supply graph of the bond market;b);Suppose that you expect a greater increase in inflation;than do other investors, but that you don?t expect the increase to occur until;2015. Should you wait until;2015;to sell your bonds? Briefly explain.;c);The columnist also argued that long-term bonds would be a;good investment only if ?we get serious price deflation.? explains the effect;on bond prices if investors decide that price deflation is likely to occur. How;would an unexpected deflation affect the rate of return on your investment in;bonds?;d);If expected inflation is increasing, would you have made a;worse investment if you had invested in long-term bonds than if you had;invested in short-term bonds?;Q.3;Should you pay attention to the;advice of investment analyst?;Financial;analysts typically advise investors to buy stocks whose prices they believe;will increase rapidly and to sell stocks whose prices they believe will either;fall or increase slowly. The following excerpt from an article by Bloomberg;news describes how well stock market analysts succeeded in predicting prices;during one year;Shares of JDS Uniphase, the company;with the most ?sell? recommendations among analysts, had been a more profitable;investment this year than Microsoft, the company with the most;?buys?;The article goes on to say, ?investors say JDS Uniphase;is an example of wall street analysts basing recommendations on past;events, rather than on earnings prospects and potential share gains.?;Briefly explain whether you agree;with the analysis of these ?investors??


Paper#52998 | Written in 18-Jul-2015

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