How can a bond mutual fund report a return of over 13% when the coupon rate of the bonds they are holding are just 7% and interest rates are falling?
What will be an ideal response?
The bond mutual fund is advertising its holding period return. As illustrated in the text, if a 20-year, 7-percent coupon bond with a face value of $100 is sold before maturity when interest rates have fallen to 6.5%, the price of that bond will rise to $106.50. The $6.50 of capital gain plus the $7.00 coupon payment represent a one-year holding period return of 13.5%. As the text notes, this is why past performance cannot guarantee future returns; if rates rise instead of fall the holding period return will not be as favorable.
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Just before, during, and after the recession of 2007-2009, net exports in the United States
A) fell, but remained positive. B) fell and remained negative. C) rose and became positive. D) rose, but remained negative.
At an output level of 8 thousand bushels, explain in terms of both marginal profit and total profit why the individual farmer should expand production.
In the competitive market for organic corn, market demand is QD = 340 – 2P and market supply is QS= 100 + 4P, where P is the price per bushel, and Q is market output in thousands of bushels. Each individual farmer faces a marginal cost function of MC = 10 + 3q, where q is the single farmer’s output level in thousands.