Principles of Macroeconomics (12th Edition)
12th Edition
ISBN: 9780134078809
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 10, Problem 5.3P
Sub part (a):
To determine
What happens to the value of the old bond.
Sub part (b):
To determine
Why would
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Students have asked these similar questions
Stock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market. What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates
a.
fall in reaction to the decreased demand for bonds.
b.
rise in reaction to the increased demand for bonds.
c.
fall in reaction to the increased demand for bonds.
d.
rise in reaction to the decreased demand for bonds.
What happens to interest rates in the market when bond prices fluctuate a lot
How do interest rates affect bond yield and bond prices.
Chapter 10 Solutions
Principles of Macroeconomics (12th Edition)
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Similar questions
- Why is it important for people who own stocks and bonds to diversify their holdings? What type of financial institution makes diversification easier?arrow_forwardWhen I expect interest rates to fall in the near future, I will be willing to Buy bonds at current prices. Buy bonds, but only if their price falls. Sell bonds now. Put my money in savings account rather than buy bonds.arrow_forwardWhy do you think mortgage backed securities paid higher interest rates than other investments like time deposits, and US government bonds during the 2007/2008 financial crisis?arrow_forward
- What has happened to the profitability of financial firms in the US economy in recent decades? Why have they been able to increase their profits? Is this a good thing for the US economy as a whole?arrow_forwardConsider a fixed-payment security that pays $500 at the end of every year for ten years. If the rate of discount is 7 percent, find the present value of the bond? Show your work..arrow_forwardMany countries have policies that limit how much interest a moneylender can charge on a loan. Do you think these limits are a good idea? Who benefits from the laws and who loses? What are likely to be the long-term effects of such laws? Tips: For part 2, you may think about how a low interest rate would affect the poor and those who owe huge debts. For part 3, you may think about how it would affect the profitability of the banking sector and the supply of lending (will lenders be encouraged to lend more?), and what implications it may have for "credit rationing" (being credit constrained).arrow_forward
- If junk bonds are called "Junk" Why then would as an investor buy Junk bonds? Explain your reasons for or against buying a junk bond.arrow_forwardExplain at least two important roles played by a safe asset in a financial market.arrow_forwardInvestors typically buy and sell stocks, bonds and other securities in the secondary market. Describe the different types of security markets and why they are so different.arrow_forward
- Why are bonds somewhat risky to buy, even though they make predetermined payments based on a fixed rate of interest?arrow_forwardWhat does it mean to say that a bond has a value less than one for its relative yield differential? What might account for such a difference?arrow_forwardWhat will happen in the bond market if the government imposes a limit on the amount of daily transactions?Which characteristic of an asset would be affected? How might it affect the interest rates?arrow_forward
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