Read the posted article “As Swiss Economy Blooms, Central Bank Presents a Quandary,” from the March 15, 2018 Wall Street Journal (author Brian Blackstone) about the most recent policy decision by the Swiss National Bank (SNB), Switzerland’s central bank. Please note: Switzerland currently floats its currency. Then answer the following questions about the article:

Explain why the SNB decided to keep its policy rate at -0.75%. Use the EUD and r equations to help with your explanation.

Why does the author say that “the central bank is still in crisis mode?” (Hint: look at the reported indicators describing current Swiss macro performance.)

How has the low policy rate affected the Swiss housing market? Is this a potential problem?

Does this article suggest a potential conflict between internal balance (IB) and external balance (EB) in Switzerland?

Switzerland is facing a dilemma: The economy is growing but the central bank is still in crisis mode. It’s a contradiction that confronts many other wealthy economies in Europe, but it's one that is particularly striking in Switzerland. The economy is on the up but the Swiss National Bank has kept the deposit rate at its current level since January 2015, when the bank also unexpectedly abandoned a ceiling on the franc’s value against the euro. On Thursday, the SNB kept its key policy rate at minus 0.75%. “The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary therefore remain essential. This keeps the attractiveness of Swiss franc investments low and eases pressure on the currency,” the SNB said Thursday. The euro traded at 1.1690 francs after the decision, little changed from Wednesday. Yet after a soft patch early last year, Swiss gross domestic product has expanded into the 2% annualized range recently. The unemployment rate was just 3.2% in January. Its trade surplus was 35 billion francs ($37.04 billion) last year, roughly 5% of Swiss GDP. In its policy statement Thursday, the SNB said it expects Swiss GDP to expand around 2% this year amid a broader pickup in the global economy. Unemployment should decline gradually, it said, while inflation is expected to accelerate to 2.2% by the end of 2020. It's an enviable mix. Yet against this favorable backdrop, such a deeply negative deposit rate—coupled with the SNB’s reiteration that it's willing to intervene in currency markets to weaken the franc if needed—seems out of place especially with Swiss policy makers still not even outlining a pathway to tighter policy. “I think that SNB runs the risk of falling behind the curve as the global economy is recovering,” said Stefan Gerlach, chief economist at EFG Bank and former deputy governor of Ireland’s central bank. It isn’t alone. Sweden and Denmark—which like Switzerland are outside the eurozone—also have negative policy rates despite healthy economies. Norway’s policy rate is just 0.5% but unlike the Swiss, its central bank on Thursday signaled that it may raise interest rates soon. Within the eurozone, Germany’s strong economy appears at odds with the -0.4% deposit rate and quantitative easing program that the ECB has installed for the euro area as a whole. The Federal Reserve has raised interest five times in two-plus years, but at a range of 1.25-1.5%, the Fed-funds rate is quite low. The SNB is constrained in raising interest rates by a trio of forces: the strong franc; low inflation; and the ECB. The euro fetched around 1.17 early Thursday. Though stronger than it was a year ago against the Swiss currency, the euro remains well below the 1.4 franc to 1.6 franc range before the eurozone’s debt crisis escalated in 2010. That has made Swiss products more expensive in Europe, the source of much of the country’s exports. Meanwhile, annual inflation was just 0.6% in February, well below rate in the U.S. and Europe. Unlike the Federal Reserve, European Central Bank and others, the SNB doesn’t target 2% inflation. It has a broader goal of keeping inflation under 2%, making it less necessary to respond to superlow inflation with easy-money policies. Still, with price pressures so low, the SNB has little to fear from an inflation standpoint by keeping rates negative. But there are other consequences, particularly on housing. The residential investment property sector “is subject to the risk of a price correction over the medium term” given its strong growth in recent years, the SNB said Thursday. Yet it's difficult for the Swiss to use interest rates to prick potential housing bubbles. Because Switzerland is a small, open economy highly dependent on Europe, the SNB is sensitive to policies taken by the ECB. As a result, many economists think the SNB will wait for the ECB to start raising rates before doing so itself, and the ECB has signaled it's no rush to increase its own negative deposit rate. The ECB is in the process of gradually scaling back its asset-purchase program. The SNB’s inaction “is far from a catastrophe, but it would be desirable to talk about how they’ll adjust policy,” said Mr. Gerlach.

A home is purchased for $134550. The homeowner pays $26910 down and finances the balance for 20 years at 8% compounded monthly.

a. Find the size of the payments rounded up to the next cent.
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b. How much of the first payment is interest?
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c. How much is still owed on the loan just after 95 payments.
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d. What is the owner's equity after 95 payments?
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e. How much is owed just before the 95 payment is actually made?
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Just after 95 payments are made, the loan is refinanced at 6.5% compounded monthly.

a. If the duration of the original loan remains the same, find the size of the new payments rounded up to the next cent.
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b. If money is worth 5.25% compounded monthly to the homeowner, what is the present value of the savings in interest at the time of refinancing?
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c. If the homeowner continues with the original payments, find the number of full payments required to pay off the loan.
full payments

d. Find the size of the smaller concluding payment at the end of the next month.
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A home is purchased for $153200. The homeowner pays $30640 down and finances the balance for 30 years at 7.5% compounded monthly.

a. Find the size of the payments rounded up to the next cent.

b. How much of the first payment is interest?

c. How much is still owed on the loan just after 110 payments.

d. What is the owner's equity after 110 payments?

e. How much is owed just before the 110 payment is actually made?

Just after 110 payments are made, the loan is refinanced at 6% compounded monthly.

a. If the duration of the original loan remains the same, find the size of the new payments rounded up to the next cent.

b. If money is worth 5.25% compounded monthly to the homeowner, what is the present value of the savings in interest at the time of refinancing?

c. If the homeowner continues with the original payments, find the number of full payments required to pay off the loan. full payments

d. Find the size of the smaller concluding payment at the end of the next month.

Background: A few years ago, companies such as AIG, who had a hand in the cause of the economic downturn that has devastated our economy, were planning to give or actually gave out huge golden parachutes to the same executives who led and approved of the companies actions.

Instructions: Please answer the questions below:

1) Perform a search of a CEO who has received a golden parachute.

1a) Who was the CEO?

1b) What was the company from where he or she received the golden parachute?

1c) What was the total compensation in the golden parachute?

1d) What happened to the company after the CEO's departure terms of before and after revenue?

1e) After the CEO's departure, did the former CEO obtain a leadership position at another firm? If yes, what company.

2) Based on your reading of Chapter 10 of your DLR e-text, do you believe the payment of these golden parachutes was ethical, right or wrong, and why? Please be substantive in your answers.

A sophisticated economic model of unemployment predicts that if welfare is reduced by 20%, the proportion of unemployed people should decrease by 6 percentage points. We want to test this prediction based on data collected prior and after a welfare reform that reduced welfare by 20%: We have a sample of n1 = 2524 randomly selected people, of which 425 are unemployed, collected before welfare reform, and we have a sample of n2 = 1278 randomly selected people, of which 161 people are unemployed, collected after welfare reform. Denote by p1 the unemployment rate in the population prior to welfare reform, and let p2 the unemployment rate (in the population) after welfare reform.

(a) State the implication of the economic theory as a hypothesis about the relationship between p1 and p2.

(b) Find a test statistic whose distribution under the null hypothesis is (approximately) standard normal.

(c) Can you reject the validity of the economic theory on 5% level against a two-sided alternative?

a) A physical education director claims by taking a special vitamin, a weight lifter can

increase his strength. Eight athletes are selected and given a test of strength, using the standard bench press. After two weeks of regular training, supplemented with the vitamin, they are tested again. Test the vitamin regimen is effective in increasing strength at the .05 level of significance. Each value in the data that follow represents the maximum number of pounds the athlete can bench press. Assume both populations normal.

athlete 1 2 3 4 5 6 7 8Before 210 230 182 205 262 253 219 216

after 219 236 179 204 270 250 222 216

claim .................................................... null hypothesis........................................ alternative hypothesis................................ Calculator Screen Name........................... test statistic .............................. pvalue/alpha comparison............................ decision ............................... Conclusion ...............................

b) Construct a 95% confidence interval for, ?d , the mean difference of the before minus the after times. Interpret the interval in a complete sentence.

Confidence Interval Name__________________________________ Interval___________________________________________ Interpret_____________________________________________

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.70%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.30%. Assume the rate of return on both funds’ portfolios (before any fees) is 7% per year.

a. How much will an investment of $100 in each fund grow to after 1 year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. How much will an investment of $100 in each fund grow to after 4 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

c. How much will an investment of $100 in each fund grow to after 13 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

A newly issued bond pays its coupons once annually. Its coupon rate is 9.2%, its maturity is 20 years, and its yield to maturity is 11%.

a. Find the realized compound yield before taxes for a 2-year holding period, assuming that (i) you sell the bond after two years, (ii) the bond yield is 10% at the end of the second year, and (iii) the coupon can be reinvested for one year at a 3% interest rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. If you sell the bond after one year, the tax rate on interest income is 40% and the tax rate on capital gains income is 30%. The bond is subject to original-issue discount tax treatment. Compute the after-tax 2-year realized compound yield. Remember to take account of OID tax rules. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Mr. H issues a 15 year mortgage of $275,000 at an annual interest rate of 3.6% to buy a house.The mortgage payments are made annually.

1.What is Mr. H's annual payment of principal and interest?

2.How much interest does Mr. H pay in the second year of the mortgage?

3.Suppose that immediately after making the second annual payment, Mr. H has the opportunity to refinance the remaining mortgage balance at an annual rate of 2.6% for the remaining period of 13 years. What is the largest lump sum refinancing payment that he would be willing to make today to secure the lower cost financing? Assume that he continues to make annual payments on the new mortgage.

4.Using the information from the refinancing question and assuming that Mr. H refinanced his mortgage at the lower rate after making two annual payments, how much is his remaining mortgage balance after making 9 of the lower annual payments in addition to the first two made before refinancing?

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.75%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.25%. Assume the rate of return on both funds’ portfolios (before any fees) is 6% per year.

a. How much will an investment of $100 in each fund grow to after 1 year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded up fund?
Economy fund?

b. How much will an investment of $100 in each fund grow to after 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.

Loaded up fund?
Economy fund?

c. How much will an investment of $100 in each fund grow to after 10 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded up fund?
Economy fund?