QUESTION 1

Jo-Anne just bought 200 bonds at a purchase price of R1 043.70 each. The bonds will mature in 7 years’ time and have a face value of R1 000.00. The coupon rate is 11% and is paid semi-annually. Answer the questions that follow:

1.1 Calculate the prevailing interest rate. (5)

1.2 If the prevailing interest rate is 12%, what would happen to the price of the bond? (5)

1.3 If Lee-Anne bought the bonds at R1 043.70 and the prevailing interest rate changes to 12%, what would the capital gains yield be? (4)

1.4. Lee-Anne bought the bonds at R1 043.70 and after four years she decides to sell the bonds while the prevailing interest rate is 9%. Answer the following questions relating to this scenario:

1.4.1 Calculate the capital gains yield. (5)

1.4.2 Calculate the current yield. (3)

1.4.3 Calculate the total Rand return. (3)

1.5 Explain in your own words the relationship between prevailing interest rates and bond prices and why the prices of bonds can change. (5)

[30 marks

1. You deposit $1,000 in a saving account at 10% compounded annually. How much is your first year interest? How much is your second year interest?

1. 100, 100
2. 100, 110
3. 100, 120
4. 100, 150

Suppose ?(?) represents the number of bacteria in a dish t hours after the start of a lab experiment. a) Interpret the meaning of ?(20) = 100

1. 100 is the average rate of change in the number of bacteria after 20 hours.

2. 100 is the rate of change in the number of bacteria after 20 hours.

3. After 20 hours, there are 100 bacteria in the dish.

4. 100 is the total change in the number of bacteria between the first hour and 20 hours later.

b) ) Interpret the meaning of ?′(20) = 100

1. 100 is the average rate of change in the number of bacteria after 20 hours.

2. 100 is the rate of change in the number of bacteria after 20 hours.

3. After 20 hours, there are 100 bacteria in the dish.

4. 100 is the total change in the number of bacteria between the first hour and 20 hours later.

Sales Forecasts for the first quarter of 2018: January 11 000 units February 13 000 units March 14 000 units. Unit selling price $100 Prepare the Sales Budget for Jan, Feb, and March. In addition to the info in problem #1, the company requires jan 20% of next month's budgeted sales as ending finished goods feb inventory each month. Ending inventory for 12/31/17 was mar 2,200 units. The Sales forecast for April is 20,000 units.

On January 1, 2020, Pele Industries purchased a machine for use in its production process. Its cash price was R$35,000. Related expenditures included: sales tax R$2,200, shipping costs R$150, insurance during shipping R$80, installation and testing costs R$70, and R$100 of oil and lubricants to be used with the machinery during its first year of operations. Provide the journal entry to record the purchase of this machine on January 1, 2020.

Consider the monopoly producer of Green Tractors whose demand function is P = 100 – Q and total cost TC = 16 + Q^2. Based on this information, answer the following questions. Hint: It might be helpful to sketch a diagram but you are not required to do so.

(4)a. What output level and price will Jim choose? (4)b. How much economic profit will Jim earn? (4)c. If Jim's total cost function changes to TC = 32 + Q^2, what, if anything, would change about his price and output decisions? Explain briefly. (4)d. If Jim is able to implement a first-degree price discrimination scheme, how many units will Jim sell and what will be the price of the last unit he sells? (4)e. Given your answer to part “d,” how much producer surplus will Jim earn?

1. The multiplier effect

Consider a hypothetical economy where there are no taxes and no international trade. Households spend $0.50 of each additional dollar they earn and save the remaining $0.50. If there are no taxes and no international trade, the oversimplified multiplier for this economy is

.

Suppose investment spending in this economy decreases by $100 billion. The decrease in investment will lead to a decrease in income, generating a decrease in consumption that decreases income yet again, and so on.

Fill in the following table to show the impact of the change in investment spending on the first two rounds of consumption spending and, eventually, on total output and income.

Now consider a more realistic case. Specifically, assume that the government in our hypothetical economy collects income taxes. In this case, the multiplier will be   the oversimplified multiplier you found earlier.

Suppose that the price level in our economy remains the same and that there is still no international trade. Now, however, the government decides to implement an income tax of 5% on each dollar of income. The MPC and MPS, however, remain the same as before. In this case, after accounting for the impact of taxes, the multiplier in this economy is     , and a $100 billion decrease in investment spending will lead to a      billion   in output.

Which of the following is false?

One interesting result from RAND Health Insurance Experiment was that the rate of treated bone fractures per capita was higher in the group of families that had been assigned to the free insurance plan, compared to those in the high cost plan. Please describe how the Grossman model might explain the fact that people facing higher prices for health care would break bones less often.

Question 6 (17)
The rand currency has been depreciating slowly over the past few years, and especially now during Covid-19 we have seen a much faster depreciation. Explain the chain of events associated with a currency depreciation. Graphically indicate how this latest sharp depression of the currency will impact the IS/LM/BP diagram. Indicate any movement of curves with arrows.