Based on our understanding of the determinants of the interest rate and bond prices, we know...
Homework Answers
Option C.
- Reduction in income will cause an increase in bond prices and a reduction in i.
- When the income of people decreases or when the yield on a bond decreases, the price on those bonds increases.
- This will in turn decrease the interest rates as the bond prices and Interest rates have negative relationship between them.
- This will allow the investor's to sell a bond for a greater amount than its purchase price.
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Based on our understanding of the determinants of the interest rate
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