Monday, April 8, 2019

Views of People Supporting Bernie Sanders


This post looks at contingency table data on what supporters of Bernie Sanders feel about health care proposals and the green new deal.

Question:  Contingency tables describing the views of Bernie Sanders supporters on health care and on the green new deal are presented below.  The first table summarizes the relationship between support for single payer and green new deal.   The second table summarizes the relationship between a proposal to fix the ACA and the green new deal proposal.

Contingency table for single payer and green new deal support for Bernie Sanders supporters


Undecided on Green New Deal
Opposed to Green New Deal
Supports Green New Deal
Supports  Single Payer
6
2
96
104


Contingency Table for fix ACA and green new deal support for Bernie Sanders supporters.


Undecided on Green New Deal
Opposed to Green New Deal
Supports Green New Deal
Total
Undecided on  Fixing the ACA
4
1
35
40
Opposed to Fixing the ACA
1
0
44
45
Supports Fixing the ACA
1
1
17
19
Total
6
2
96
104



Discussion of Contingency Tables


100 percent of Bernie Sanders supporters in the sample support a single payer health plan.

An overwhelming majority 92.3 percent of this sample of Bernie Sanders’ supporters support the Green New Deal.  Only  2 of 104 supporters of Sanders oppose the Green New Deal with 6 of 104 undecided.

Fewer than 20 percent of Sanders’ supporters support fixing the ACA.   The number of Sanders’ supporters undecided or opposed to fixing the ACA  are both more than double the number of Sanders’ supporters in support of fixing the ACA.


Overwhelmingly Sanders’ supporters favor both single payer health plan and the green new deal.  The Pearson chi-square test for independence indicates ACA support and Green New Deal support are probably independent.   We can’t reject this null hypothesis.  

Political Comments:


The 2018 election was about keeping and defending the ACA.   The Democrats won big in  conservative House Districts formerly held by Republicans.

If Bernie Sanders or Elizabeth Warren or Kamala Harris win the nomination the 2020 election will be about single payer replacing private health insurance.   Many people will prefer their existing health insurance to Medicare for all.   These people will vote Republican.   Trump could get reelected and the House could flip.

Authors Note:    Are Centrists losing the battle for the 2020 nomination? My Policy Primer available on Kindle lays out fiscally responsible approaches to reducing student debt burdens, expanding and improving health insurance coverage, and increasing retirement security. 


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Thursday, November 29, 2018

Bond Prices, Interest Rate Changes and Coupon Size


Bond Prices, Interest Rate Changes, and Size of Bond Coupon

Question:   Consider four bonds each with semi-annual payments, a 10-year maturity and a face value of $1,000 redeemed at maturity.   The bonds differ in semi-annual coupon – $100, $50, $25, and $0.

What are bond values at issue date if the yield to maturity is 3 percent?

What are bond values at issue date if the yield to maturity is 6 percent?

How did the change in interest rates impact the change in bond prices across the four bonds?

What are the durations of the four bonds?

How do bond durations appear to vary with changes in bond prices stemming from an interest rate change in this example?


Calculations:

Here are the bond prices at a 3 percent interest rate.


Bond Prices at 3.0 percent interest rate
Maturity Semi-Annual Payments
20
20
20
20
Coupon Payment
100
50
25
0
Par Value
1000
1000
1000
1000
YTM
0.03
0.03
0.03
0.03
PV
$2,459.33
$1,600.90
$1,171.69
$742.47



Here are bond prices at 6 percent interest rate.








Bond Prices at 6 percent interest rate
Maturity Semi-Annual Payments
20
20
20
20
Coupon Payment
100
50
25
0
Par Value
1000
1000
1000
1000
YTM
0.06
0.06
0.06
0.06
PV
$2,041.42
$1,297.55
$925.61
$553.68

Here are bond prices changes for when the interest rate goes from 3 percent to 6 percent.


Change in bond prices when interest rates go from 3 to 6 percent
PV @ 3 percent
$2,459.33
$1,600.90
$1,171.69
$742.47
PV @ 6 percent
$2,041.42
$1,297.55
$925.61
$553.68
Diff
($417.91)
($303.35)
($246.07)
($188.79)
Percent Diff.
-17.0%
-18.9%
-21.0%
-25.4%



Here are bond duration estimates (weighted average of times cash flow is received) for the four bonds.

Bond Duration When Interest Rates are at 3 percent
Settlement Date
1-Jan-18
1-Jan-18
1-Jan-18
1-Jan-18
Maturity Date
1-Jan-28
1-Jan-28
1-Jan-28
1-Jan-28
Coupon rate
10.00%
5.00%
2.50%
0.00%
Yield
3.00%
3.00%
3.00%
3.00%
Frequency
2
2
2
2
Duration
7.32
8.17
8.88
10.00

Note that the higher duration bonds realized a large percent decline in bond price when interest rates rose from 3 percent to 6 percent.


Notes:


The bond price is the negative of the PV of the cash flows.  The PV function itself provides a negative number reflecting that the investor is paying for the bond and at the time of purchase money is leaving the investor’s hands.

A bond duration is the weighted average of times when the cash flows of the bonds are received.  The duration of a zero-coupon bond is equal to its maturity as there is only one cash flow date, the maturity of the loan.

Bonds with higher coupon rates have lower durations because cash flows are received earlier.   An increase in the coupon rate leads to lower duration.

Bond durations are a measure of the sensitivity of the price of bonds to interest rate changes.   When interest rate changes are very small the duration can provide a close estimate to the impact of a change in interest rates on bond prices. This approximation is less exact for large interest rate changes.


Authors Note:   Please consider reading my finance blog.   Start with this essay on problems with the U.S. retirement system.




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