Answered: Explain what happens to the bond price…

Explain what happens to the bond price and interest rate and why. Expected inflation increases The return on bonds rises relative to other assets The federal government deficit increases i) ii) iii)

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 3Q

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Concept explainers

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.

Question

1.Explain what happens to the bond price and interest rate and why.
Expected inflation increases
The return on bonds rises relative to other assets
The federal government deficit increases
i)
ii)

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