Please answer questions. Thanks. Chapter 7 Problem 4: Assume personal income was
ID: 2638093 • Letter: P
Question
Please answer questions. Thanks.
Chapter 7
Problem 4:
Assume personal income was $28 million last year. Personal outlays were $20 million and personal current taxes were $5 million.
What was the amount of disposable personal income last year?
What was the amount of personal saving last year?
Calculate personal saving as a percentage of disposable personal income.
Chapter 8:
Problem 4:
A thirty-year U.S. Treasury bond has a 4.0% interest rate. In contrast, a ten-year Treasury bond has an interest rate of 3.7%. If inflation is expected to average 1.5% 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 9:
Problem 6:
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:
5% for ten years
7% for seven years
9% for four years
Explanation / Answer
Chapter 7 problem 4
disposable personal income = income - outlays = 28 - 20 = 8 million
amount of personal savings = disposable personal income - taxes = 8 -5 = 3 million
personal saving as percentage of disposable income = 3/ 8 * 100% = 37.5%
Chapter 8 problem 4
interest rate of treasury bond
= risk free rate + inflation rate + Matuirity risk premium
where riskfree rate is nothing but interest rate of ten year treasury bond
4% = 3.7% + 1.5% + maturity risk premium
maturity risk premium = -1.2% ....ans
chapter 9 problem 6
Present value = cash flow/(1+interest rate)^n
a)
PV = 5000/(1+0.05)^10 = 3069.57
b)
PV = 5000/(1+0.07)^7 = 3113.75
c)
PV = 5000/(1+0.09)^4 = 3542.13