Question

What is the relationship between the price of bonds and interest rates. What is the yield of the bond?

Explain in detail what happens when the Fed increases the money supply? You should be able to graph that as well.

Answer #2

1) The price of bonds and interest rates are inversely related. When new bonds are issued, they typically carry coupon rates at or close to the prevailing market interest rate. Interest rates and bond prices have an inverse relationship; so when one goes up, the other goes down and vice versa.

Yield is the annual return earned on the price paid for a bond. It is calculated by dividing the bond's coupon rate by its purchase price. The higher a bond's price, the lower its yield.

answered by: anonymous

Explain the relationship between interest rates and bond value.
What makes interest rates change? Is it possible to lose money if
you invest in bonds, even federal government bonds? Why or why
not?

Explain the relationship between interest rates and bond value.
What makes interest rates change? Is it possible to lose money if
you invest in bonds, even federal government bonds? Why or why
not?

Explain what you learned about the relationship between interest
rates and bond value. What makes interest rates change? Is it
possible to lose money if you invest in bonds, even federal
government bonds? Why or why not?

What is the difference between nominal and real interest rates?
Explain the relationship between the interest rate and investment
by graph. If the interest rate increases how does change
investment, aggregate demand (AD) and output? Why?

5)
Real interest rates can be negative.
A. True
B. False
6)
If the equilibrium price of bonds increases, what happens to the
associated interest rate?
A.
Interest rate increases
B.
Interest rate declines
C.
Interest rate does not change
7)
What happens to the equilibrium price of bonds if the supply of
bonds shifts leftward?
A.
Bond price increases
B.
Bond price declines
C.
Bond price does not change
8)
Suppose the demand for bonds and the supply of...

5. a. Describe the relationship between the interest rates on
bonds of different maturities.
b. If we follow the Expectation Hypothesis, calculate the
interest rate on a 3-year bond if
a 1-year bond has an interest rate of 2% and is expected to
have an interest rate of 3% next year, and 5% in two years.
c. How does the Liquidity Premium Theory explain an
upward-sloping yield curve during normal economic
environment?
d. Explain the economic implications of an inverted...

What is the relationship between interest rates and the demand for
investment goods in any time period? You should be able to explain
this relationship, that is, why it exists

3. Consider what you know about bonds and bond valuation:
a. Describe the relationship between interest rates (yields) and
bond prices. (5)
b. Explain, in words and graphically, the progression in price
of par, discount, and premium bonds as the bonds move forward in
time to their maturity. (5)

Which of the following describes the relationship between stock
and bond prices and interest rates?
There is a direct and positive relationship between the rate of
interest and stock and bond prices. (As interest go up, stock and
bond prices rise as well.)
The relationship is far too difficult to quantify.
There is an inverse relationship between interest rates and the
price of a stock or a bond. (As interest rates go up, stock and
bond prices decline.)
It varies...

Explain why there is an inverse relationship between the price
of bonds and the interest rate, or yield, on bonds. (Remember that
simply stating there is an inverse relationship is not the same as
explaining why the relationship is inverse). It might be best to
use an example here.

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