FINANCE

Week 5 Homework FIN 100 Cathy Toliver

Chapter 7, P4, Page 177

Assume personal income was $28 million last year. Personal outlays were $20 million and personal current taxes were $5 million.

a. What was the amount of disposable personal income last year?

Disposable personal income (DPI) = personal income – personal current taxes

DPI = xxx million – xxx million = xxx million

b. What was the amount of personal savings last year?

Personal savings (PS) = disposable personal income – personal outlays

PS = xxx million – xxx million = xxx million

c. Calculate personal savings as a percentage of disposal personal income?

Savings rate = $ xxx million/$ xxx million = xxx %

Chapter 8: P4 Page 203.

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 3.7 percent. If inflation is expected to average 1.5 percentage points over both the next ten years and thirty years, determine the maturity risk premium for the thirty- year bond over the ten- year bond. Chapter 8 page 186-188.

r = RR + IP + DRP + MRP +LP

RR and IP are the same for both bonds and there is no DRP or LP.

Thus, MRP = r 30-year Treasury – IP) – (r-10-year Treasury- IP) = (xxx% - 1.5%) – (xxx% - 1.5%) = xxx% - xxx% = 0.3%

Or, MRP = r30-year Treasury – r10- year Treasury = xx% - xx% = xx%

Chapter 9: P6 page 231.

Determine the present values if $5,000 is received in the future (i. e., at the end of each indicated time period) in each of the following situations: Chapter 9 pgs. 211-214.

a.       5 percent for 10 years

$5,000 (5%, 10 years, Table 9.2, page 214) = $xxx

1. 7 percent for 7 years

$5,000 (7%, 7 years, Table 9.2, page 214) = $xxx

1. 9 percent for 4 years

$5,000 (9%, 4 years, Table 9.2, page 214) = $xxx