a) A typical central bank has several interest rates or monetary policy tools it can set to influence markets. Define three (3) such rates.
b) State three (3) functions of a Central Bank.
c) Malcolm Company’s bonds have 5 years remaining to maturity. Interest is paid quarterly; the bonds have a $1,000 par value; and the coupon interest rate is12%. Would you pay $950 for one of these bonds if you thought that the appropriate rate of interest was 14% – that is, if kd = 14%? Why?
d) A Company last paid a dividend of $0.90. It is expected that dividend will grow at 25% per annum for the foreseeable future and the investors are requiring 30 % per annum for stocks in this risk class. What is a fair price for the stock?
e) Define Stagflation and also state what is the CPI used for?