Consider an economy in which loans can be of two kinds. Loans may be made and repaid in terms of gold or they may be made and repaid in terms of cash. Suppose all markets are perfectly competitive, which also implies that there are no costs of transacting in markets. In the current period, a loan of 140 gm of gold has to be repaid in the next period with interest of 7 gm of gold, a loan of ₹ 120 has to be repaid with interest of ₹ 18 and all lenders and borrowers are indifferent between gold loans and cash loans. What is the expected percentage rise in the rupee price of gold next period?
5 marksMacroeconomicsTime value of money and bond pricingBond prices, yields and no-arbitrageHardabout 7 min
JNU SSS 2017 Question 42: Time value of money and bond pricing
Answer and worked solution
Checking your account…
Time value of money and bond pricing has come up 20 times in 5 exams since 2010.
What this question tests
This question is on Bond prices, yields and no-arbitrage, part of Time value of money and bond pricing in Macroeconomics.
How bond prices move with interest rates and what ties asset returns together.
TestStop has 8 past-paper questions on this subtopic; the nearest in year are below.
Similar questions from other papers
- The present value of a perpetual cash flow of Rs.250 per year, discounted at the rate of 10% each year, is Rs..
- If the current rate of interest changes from 5% to 4%, the market value of a pre-existing bond changes by:
- Which one is NOT TRUE about bonds?
- Assume you have the option to choose between receiving a given amount of money M 5 years from now or 10 years from now, and the discount rate is positive. Which option…
Question from the JNU SSS 2017 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.