1. Using a supply-and-demand graph for the market for money, model how interest rates would change if the Federal Reserve announced that it was increasing the required reserve ratio.
2. You are considering a 20 year, $1,000 face (par) value bond with a 10 percent annual coupon. The bond pays interest semi-annually.
The above bond is callable after it has been outstanding 4 years at a call price of $1050. If you buy the bond today for $1197.93, what is the bond’s yield to call? (State answer in annual percentage rate)