Problem
1. Suppose that interest rates are 6 percent in the economy and a safe bond promises to pay $3 per year in interest forever. What do you think the price of the bond will be? Why?
2. Suppose that in the economy described in Test Yourself 1, interest rates suddenly fall to 3 percent. What will happen to the price of the bond that pays $3 per year?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.