2. What is a volume of China’s interbank bond market in 2014 and 2015. 3. If...

2. What is a volume of China’s interbank bond market in 2014 and 2015.

3. If you put ￥100 in a bank, how much will it be worth in 10 years? Suppose the interest rate is constant at 4%.

4. Suppose you will receive 1000 Yuan in 5 years, what is the present value of this 1000 Yuan if the interest rate is constant at 5%?

5. Give your definition of “risk averse” behavior and ilustrate with an example.

Solutions

Expert Solution

2. The interbank bond market is bond market involving several banking institutions. The total bond issued in China's bond market during 2014-15 was RMB 16.82 trillion Yuan.

3. Total amount = 100(1+.04)¹⁰ = 148.024 Yuan

4. Present worth of 1000 Yuan = 1000(P/A, 5%, 5) = 1000* 4.329 = 4329 Yuan (Using annuity table for discrete compounding)

5. Risk Averse: Risk Averse investor is reluctant to invest in investment plans that involves risk. In other words, a risk averse person prefers to invest in a scheme that involves lower risk than others. For such investors, high yields of a high risk investment plan does not matter. For example, equity stocks of large companies offer higher rate of returns than the debt plans. But equity investment plan involves market risk and rate of returns may fluctuate depending on market factors. The debt investment plans such as bonds and mutual funds offers low rate of returns to investors but carry comparatively lower risks than equity stocks. Therefore, a risk averse investor will invest in a debt plan such as government bonds that offers a guaranteed monthly returns.

Rahul Sunny answered 1 year ago

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