4-6 page report see the attached file. please ask questions if need to. see attached file due 12/14/17.
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Compose a 4-6 page report, double-spaced, on the following topic. Be sure to illustrate your report with
relevant financial numbers and data, and to explain the significance of this data. APA format is expected
(include a cover page, outline, body of the report/paper, and a properly formatted works cited page (no
abstract is needed for this assignment)).
B A C K G R O U N D INFORMATION: During the Carter administration, long-term US Treasury yields
exceeded 15%, and short-term T-Bills yielded near 20%. After Reagan’s inauguration, interest rates
began to f a l l ^ s Fed Chairman Voicker’s restnctive monetary policy succeeded in containing inflation.
Over tire past 30 years, US rates have steadily declined: T-Bills are hovering under 1 % and the long bond
is yielding about 4%.
Lately, though, rising oil prices have incited inflationary forces. China and other developing nations have
increased their consumption for oil, metals, materials, and food. Thus, both foreign and domestic factors
have spurred demand and are contributing to rising prices on a global scale. In addition to this
commodity-induced inflation, US consumers are faced with rising costs for essential services such as
healthcare and education.
The Chairwoman of the Federal Reserve, Janet Yellen, is faced with a dilemma. Should the Fed increase
rates to contain inflation; or, should the Fed keep rates very low to spur the US economy which is beset
by a collapse in home values, an extensive banking crisjs, and a faltering stock market ?
YOUR ASSIGNMENT: Given this economic background…Compose a 4-6 page report, double-spaced,
on the following topic: If the Fed decides to raise interest rates next year, what effect would rising rates
have upon the following: (1) Consumer financing for big-ticket items such as autos and homes; (2) the
present and future values of annuities; (3) the NPV calculation; (4) the WACC; (5) corporate earnings ?
Be sure to illustrate your report with relevant financial numbers. Hint: for topic (3), above, one approach
you might adopt is to cite the NPV calculation from previous case problems, then to contrast it against a
new calculation performed with a higher interest rate. Cite the numeric effect upon the NPV, and then
explain its rationale and its significance. This is the kind of “numeric illustration” that you should provide
for each of the five topic sections.
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