Contabilidad

Chapter 6

Interest Rates and Bond Valuation

„ Solutions to Problems

P6-1. LG 1: Interest Rate Fundamentals: The Real Rate of Return

Basic

Real rate of return = 5.5% – 2.0% = 3.5%

P6-2. LG 1: Real Rate of Interest

Intermediate

(a)

Supply and Demand Curve

0

1

2

3

4

5

6

7

8

9

1 5 10 20 50 100

Current

Suppliers

Interest Rate

Required

Demanders/

Supplier (%)

Demanders

after new

Current

demanders

Amount of Funds

Supplied/Demanded ($) billion

(b) The real rate of interest creates an equilibrium between the supply of savings and the demand

for funds, which is shown on the graph as the intersection of lines for current suppliers and

current demanders. K0 = 4%

(c) See graph.

(d) A change in the tax law causes an upward shift in the demand curve, causing the equilibrium

point between the supply curve and the demand curve (the real rate of interest) to rise from

ko = 4% to k0 = 6% (intersection of lines for current suppliers and demanders after new law). Chapter 6 Interest Rates and Bond Valuation 145

P6-3. LG 1: Real and Nominal Rates of Interest

Intermediate

(a) 4 shirts

(b) $100 + ($100 × 0.09) = $109

(c) $25 + ($25 × 0.05) = $26.25

(d) The number of polo shirts in one year = $109 ÷ $26.25 = 4.1524. He can buy 3.8% more

shirts (4.1524 ÷ 4 = 0.0381).

(e) The real rate of return is 9% – 5% = 4%. The change in the number of shirts that can be

purchased is determined by the real rate of return since the portion of the nominal return for

expected inflation (5%) is available just to maintain the ability to purchase the same number

of shirts.

P6-4. LG 1: Yield Curve

Intermediate

(a)

Yield Curve of U.S. Treasury Securities

0

2

4

6

8

10

12

14

0 5 10 15 20

Yield %

Time to Maturity (years)

(b) The yield curve is slightly downward sloping, reflecting lower expected future rates of

interest. The curve may reflect a general expectation for an economic recovery due to

inflation coming under control and a stimulating impact on the economy from the lower rates.

P6-5. LG 1: Nominal Interest Rates and Yield Curves

Challenge

(a) kl = k*

+ IP + RP1

For U.S. Treasury issues, RP = 0

RF = k*

+ IP

20 year bond: RF = 2.5 + 9% = 11.5%

3 month bill: RF = 2.5 + 5% = 7.5%

1 year note: RF = 2.5 + 6% =

...