Do the following exercise with the help of the data provided in the tables below. You will use Excel to create your graphs. In an MS Word file of no more than 1-2 pages, write up responses to the points 2 and 3 below.
Table 1: Demand of Bonds
Point Price of bond Interest rate (i) Demand
A $925 (1000 - 925)/ 925 = 8.1% $100 billion
B $800 (1000 - 800)/ 800 = 25% $400 billion
Table 2: Supply of Bonds
Point Price of bond Interest rate (i) Demand
A $925 8.1% $400 billion
B $800 25 % $100 billion
1. Draw the demand and supply schedules for bonds using:
X- axis : $Amount
Y- axis: Interest rate
2. Calculate the equilibrium interest rate and dollar amount. Interpret this graph using the Loanable funds theory.
3. Discuss various factors that affect the demand for bonds and supply of bonds.
Demand of Bonds Point Price of bond Interest rate (i) Demand A $925 (1000 - 925)/ 925 = 8.1% $100 billion B $800 (1000 - 800)/ 800 = 25% $400 billion Table 2: Supply of Bonds Point Price of bond Interest rate (i) Demand A $925 8.1% $400 billion B $800 25 % $100 billion Draw the demand and supply schedules for bonds using: X- axis : $Amount Y- axis: Interest rate Calculate the equilibrium interest rate and dollar amount. Interpret this graph using the Loanable funds theory. Discuss various factors that affect the demand for bonds and supply of bonds.
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