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Bond valuation

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  amount of fu interest rate interest rate int rate by funds demand12%7%9%53%6%8%104%4%7%A,C206%3%6%507%2%4%1009%1%3%BThe real rate of interest creates an equilibrium between the supply of savings which is shown on the graph as the intersection of lines for current suppliers a 0 = 4%DA change in the tax law causes an upward shift in the demand curve, causi supply curve and the demand curve (the real rate of inter o = 4% to k 0 = 6% (intersection of lines for current suppliers and deman A100RS. 25 eachtotal 4 shirts 040801200%2%4%6%8%10% Chart Title interest rate byfunds suppliersinterest rate byfunds demandersint rate by fundsdemanders  B100+(100*0.09)=109$C25+(25*0.05)=$26.25DThe number of polo shirts in one year = $1 ÷ $26.25 = 4.1524. He can buy 3.8% more shirts ÷ 4 = .0381)EREAL rate of return = r-rf9%-5% is equals to 4%treasury sectime to matuyieldA1 year12.60%B10 years11.20%C6 months13.00%D20 years11.00%E5 years11.40%AB IS DOWNWARD SLOPING. LOWER FUTURE EXPECTING RATES 0123456700.020.040.060.080.10.120.14 Chart Title  NOMINAL INTEREST RATES. FOR TREASURY ISSUE rp=0PERIODK*IPrf=k*+IPA3 MONTHS2.50%5%7.50%2 yrs2.50%6%8.50%5yrs2.50%8%10.50%10 yrs2.50%8.50%11.00%20yrs2.50%9%11.50%Bif k* drops to 2%, nominal intrest rate increase by 0.5%CThe yield curve for U.S. Treasury issues is upward sloping, reflecting the prevai DUPWARD sloping of curve is due to desire by lender to lend short term and desi EUPWARD SLOPE IS DUE TO fact under current market conditions. nominal and real rates SECURITYKIPk*=k-IPA12.60%9.50%3.10%B11.20%8.20%3.00%C13%10%3.00%D11%8.10%2.90%E11.40%8.30%3.10%BREAL RATE OF INTEREST DECREASE. FROM JANUARY TO MAR real intrest rate include economic conditions like gov budget defi C  D OWNWARD SLOPING REFELCT LOWER EXPECTED FUTURE RA B,C ears ago, yeild curve is flat reflect stable inflation. 2 years ago curve is downw RISK FREE RATE AND RISK PREMIUM Asecurityk*iprfA3%6%9%B3%9%12%C3%8%11%D3%5%8%E3%11%14%B Since the expected inflation rates differ, it is probable that the maturity of each security diffe
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