e.com Ol-94 Admission Nu...-OEM FBAC9072AC. pa- a:. Supplementwareha. 10 pts Que

Question

e.com Ol-94 Admission Nu...-OEM FBAC9072AC. pa- a:. Supplementwareha. 10 pts Question 3 As in the preceeding question, the demand curve and supply curve for bonds are estimated using the following equations: Bd: Price -2/5Quantity+940 Bs: Price Quantity+500 Following a dramatic increase in the value of the stock market, many retirees started moving money out of the stock market and into bonds. This resulted in a parallel shift in the demand for bonds, such that the price of bonds at all quantities increased $50. Assuming no change in the supply equation for bonds, what is the new equilibrium price and quantity? Price to 2 decimals$ Quantity to 2 decimals What is the new market interest rate to 2 decimals? Question 4 10 pts F4 FS F7 F8 F9

Explanation / Answer

Solution:-

a) Ans:- Equilibrium Price= $850.00

                Equilibrium Quantity= 350.00

b)Ans:- Expected interest rate = =17.65%

Calculations are done below:-

The given new equation can be represented as follows

    i)Demand :- Price= -2/5Quantity +990 (since $50 increase)

   ii)Supply:- Price= Quantity+500

Subtracting equation (ii) from (i) we get

        0= -2/5Quantity-Quantity+990-500

7/5 Quantity = 490

Quantity = 490*5/7 =350.00

Putting quantity value in equation (ii) we get

Price= 350+500 =$850.00

b) Expected interest rate= (Par value-price)/Price

                                 =(1000-850)/850

                                  =17.65%

Please feel free to ask if you have any query in the comment section.

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