An economist has concluded that near the point of

Question

Financial Markets Assignments

1. Last month, corporations supplied $250 billion in one-year discount bonds to investors at an average market rate of 11.8%. This month, an additional $25 billion in one-year discount bonds became available, and market rates increased to 12.2%. Assuming that the demand curve remained constant; derive a linear equation for the demand for bonds, using prices instead of interest rates.

2. An economist has concluded that, near the point of equilibrium, the demand curve and supply curve for one-year discount bonds can be estimated using the following equations:

B^d: Price = (-2/5) Quantity + 940

B^s: Price = Quantity + 500

a. What is the expected equilibrium price and quantity of bonds in this market?

b. Given your answer to part (a), which is the expected interest rate in this market?