Question

demand and supply curve for one-year discount bonds with face value of S100 are represented by...

demand and supply curve for one-year discount bonds with face value of S100
are represented by the following equation:
Demand for bonds: Price =-0.8*Quantity+ 1,160
Supply of bonds: Price= Quantity +720
What is the expected equilibrium price? (2%)
What is the expected interest rate in this market? (2%)

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Answer #1
Equating Demand and Supply
-0.8Q +1160 = Q + 720
1.8 Q = 440
Q = 244.44
Price = 964.44
Interest rate 1000/964.44 - 1
Interest rate 3.69%
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