When interpreting bond prices as present values, discuss what factors determine the price of a two-year discount bond. Include in your answer an explanation of how changes in each of these factors affects the price of a two-year discount bond
What will be an ideal response?
The price of the two-year bond will be a function of the face value, the current one-year rate and the future expected one-year rate. An increase in either of the one-year rates will reduce the present value of the bond and, therefore, reduce its price. An increase in the face value (constant) would increase the price.
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A monopolistically competitive firm ________
A) can increase price without losing all of its business B) loses all of its business if it increases price slightly C) faces a perfectly elastic demand curve D) faces a perfectly inelastic demand curve
The relationship among interest rates on bonds that all mature at the same time is known as the
A) term structure of interest rates. B) risk structure of interest rates. C) term premium. D) Treasury yield.