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Suppose that the interest rate this year is 5% and financial markets participants expect the annual interest rates to increase to 5.5% next year, to 6% two years from now, and to 6.5% three years from now. determine the yield to maturity on each of the following bonds;

a. a one year bond
b. a two year bond
c. a three year bond

suppose that at age 21, you have just finished college and have been offered a job with a starting salary of $45,000. your salary will remain constant in real terms. however, you've also been admitted to a professional school. the school can be completed in two years. upon graduation you expect your starting salary to be 10% higher in real terms and to remain constant in real terms thereafter. the tax rate on labor income is 30%.

A. if the real interest rate is zero and you expect to retire at age 59 (i.e., if you do not go to professional school, you expect to work for 38 years total), what is the maximum you should be willing to pay in tuition to attend this professional school?

B. what is your answer to part (a) if you expect to pay 25% in taxes?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M939631

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