Assignment:
Determination of Interest Rates
Prior to beginning work on this assignment, read Hubbard and O'Brien's (2017). Choice Financial is a financial services firm based in San Diego, California. In early 2018, Tom Jones, a financial analyst for the firm, predicted that the inflation rate would go up from 1.5% in 2018 to 6% in 2020. He advised investors not to buy bonds because their prices would fall as inflation increased.
1. Explain why bond prices fall when inflation increases.
2. Analyze the relationship between the price of bonds and interest rates.
3. Appraise how interest rates are determined using the following models and whether the different models produce different results in determination of interest rates:
- Demand and Supply
- Bond Market
- Money Market
4. Evaluate how each of the following affects interest rates and the price of bonds:
- Yield to Maturity
- Bond Yields
- Risk
The Determination of Interest Rates paper
Must be three to four double-spaced pages in length (not including title and references pages) and formatted according to APA style as outlined in the Ashford Writing Center.