π Section/Student Qs for Lecture 6
Agenda for Saturday Section, July 20 β
- Slide Review, concentrating on the most important and challenging slides from this weekβs lecture.
- Pages about this lecture on this website. Read π§ Getting Oriented for how to find them on the site.
- Office Hours. Click here for notes and timestamps. Email office hour questions to robecon1452@gmail.com and I will cover them next section.
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π Questions covered Saturday Section, July 20
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β Not sure how to approach Question 7.
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Why (1-t)?
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β Suppose you have a debt instrument with an interest rate of r and your marginal tax rate is MTR.
Suppose you invest $100. Your tax will be . Your after tax income will be To calculate a return on your original investment, you just divide by $100. In conclusion, whenever you want to know your final return (as a percentage), you just take your pretax return, r, and multiply it by (1-t).
When you multiply by (1-t), then, intuitively, the 1 refers to your interest income, and the t refers to the bite that is taken out of the interest income by taxes.
Slide
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β Can you include that slide?
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bid and ask?
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β If you want to find out how much you pay for a bond, how do you use the bid and ask?
β Historically, bonds have been sold by dealers. Dealers, also known as market makers, will publish prices at which they will buy and sell a given bond.
- The price at which they will buy a bond is the price they are βbiddingβ for the bond. Therefore, the highest price that a bond dealer is bidding for a bond is known as the βbid.β
- If you want to sell a bond, you receive the bid.
- The price at which they will sell a bond is the price they are βaskingβ for the bond. The lowest price that a bond dealer is asking for a bond is known as the βask.β
- If you want to buy a bond, you will pay the ask. Generally, the bid will be lower than the ask.
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