b) Suppose that the yield to maturity of the bond is i = 0.05. What is the quantity demanded/supplied at this interest rate? What happens to the demand/supply of the bond as the interest rate increases? Explain why. c) What is the equilibrium interest rate? d) Suppose that the bond trades at premium. Is there excess demand or supply? Explain. e) There is a business cycle expansion, so both supply and demand shifts. After the shift, the new demand curve is given by: D = 4000 + X − 2P, whereas the new supply curve is S = 2P + 200. For which values of X will the interest increase/decrease? Which values of X are in line with empirical data?
The
two years to maturity as a function of its price P is D = 4000 − 2P. The supply in (billions of
£) as a function of the price of the bond is S = 2P + 400.
b) Suppose that the yield to maturity of the bond is i = 0.05. What is the quantity
demanded/supplied at this interest rate? What happens to the demand/supply of the bond as
the interest rate increases? Explain why.
c) What is the equilibrium interest rate?
d) Suppose that the bond trades at premium. Is there excess demand or supply? Explain.
e) There is a business cycle expansion, so both supply and demand shifts. After the shift, the
new demand curve is given by: D = 4000 + X − 2P, whereas the new supply curve is S =
2P + 200. For which values of X will the interest increase/decrease? Which values of X are
in line with empirical data?
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please only answer part e. dont use the other peoples working out because it is wrong. for example for part a) D = 4000 - 2P = 4000 - 2(50/(1+0.05) + 50/(1+0.05)2 + 1000/(1+0.05)2) = 3534.27 is wrong it should equal 2000
by Bartleby ExpertE) There is a business cycle expansion, so both supply and
new demand curve is given by: D = 4000 + X − 2P, whereas the new supply curve is S =
2P+ 200. For which values of X will the interest increase/decrease? Which values of X are
in line with empirical data?
by Bartleby Expert
