08 Jun Question (5 points) Last month, corpora
Question
(5 points) Last month, corporations supplied $250 billion in bonds to investors at an average market rate of 11.8%. This month, an additional $25 billion in bonds became available, and market rates increased to 12.2%. Assuming a Loanable Funds Framework for interest rates, and that the demand curve remained constant, derive a linear equation for the demand for bonds as a function of price. Hint: to find prices, find the price of a one-year, $1000 face, zero-coupon bond at that rate.
Given: price of discounted bond slope
Bs $ 250,000,000,000
increase in Bs $ 25,000,000,000
initial rate 11.8% $ 894.45
final rate 12.2% $ 891.27
price
$ 1,000.00
initial price 894.4543828
final price 891.2655971
DEMAND=M*PRICE+B
m=
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