Suppose that a one-year Treasury bond has a face value of $110,000.00 and is currently selling in the bond market for $100,000.00. This bond is safe, because the U.S. Treasury never defaults on its promises. For the sake of this question (and to make life easier for all of us), assume that the face value and the price of this bond will remain the same throughout the story. The Treasury issues another one-year bond with a face value of $174,900.00 and a starting price of $170,000. However, nobody buys this bond. People believe it is too expensive. (Why do you think they believe this is expensive?) Consequently, the price of this bond in the bond market drops to..... dollars
Suppose that a one-year Treasury bond has a face value of $110,000.00 and is currently selling in the bond market for $100,000.00. This bond is safe, because the U.S. Treasury never defaults on its promises. For the sake of this question (and to make life easier for all of us), assume that the face value and the price of this bond will remain the same throughout the story.
The Treasury issues another one-year bond with a face value of $174,900.00 and a starting price of $170,000. However, nobody buys this bond. People believe it is too expensive. (Why do you think they believe this is expensive?) Consequently, the price of this bond in the bond market drops to..... dollars
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