Step-by-step solution file
The Behaviour of Interest Rates CONCEPTS IN THIS CASE effect of
The Behaviour of Interest Rates
CONCEPTS IN THIS CASE
effect of interest-rate changes
loanable funds framework
asset market approach
liquidity preference framework
demand and supply curves
Your company is interested in analyzing the behaviour of interest rates and the models used to predict interest rates in the future. As an initial project in this area, you have been assigned the task of creating a presentation that will show the top management team assigned this project the basics of what affects interest rates and how equilibrium prices change over time. The better your presentation to this group, the more likely you are to become a voting member of the team. To begin your work, you have decided to identify a series of questions that you think this team will ask, including tables and graphs that will satisfy their concerns about the final presentation to the CFO. You decide to start by answering the following questions, assuming that the face value of a discount bond is $1,000 and the time to maturity is one year.
What is the expected return for this bond if the market price is
If the market-clearing price (market equilibrium) of this bond has a return of 20% what is the market price where the quantity demanded equals the quantity supplied? (Hint: Use the same expected return equation, solve for Pd.)
Which factors would cause the demand curve for bonds to shift?
Which factors would cause the supply curve for bonds to shift?
Explain what the Fisher effect is and how it would be reflected in rising interest rates.
Explain the meaning and differences between the loanable funds framework and the liquidity preference framework in estimating the equilibrium interest rate. (Include the effects of changes in income, price levels, and expected inflation.)
Predict the supply and demand changes for bonds and money that usually occur with the following events:
business cycle expansion with growing wealth
expected rise in interest rates
increase in expected rate of inflation
increased risk for bonds
increased liquidity for bonds
higher government deficits
increase in level of income
rise in the price level
income rising during an expansion
price level increases
This question was answered on: Feb 21, 2020
This attachment is locked
We have a ready expert answer for this paper which you can use for in-depth understanding, research editing or paraphrasing. You can buy it or order for a fresh, original and plagiarism-free copy (Deadline assured. Flexible pricing. TurnItIn Report provided)
Need a similar solution fast, written anew from scratch? Place your own custom order
We have top-notch tutors who can help you with your essay at a reasonable cost and then you can simply use that essay as a template to build your own arguments. This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student. New solution orders are original solutions and precise to your writing instruction requirements. Place a New Order using the button below.