Annuity The market forces in financial markets are determining that all asset yields (interest rates) are equal to 5% a year. A government bond issued today pays $10,000 a year for each of the next three years, and therefore, the price of the bond today is approximately $27,232.50. Suppose that you are the governor of the Reserve Bank of Australia and you want to reduce the interest rate to 2% implementing yield-curve control policy. What would you do? a. Buy 50% of the stock of bonds. b. Buy any quantity of bonds at $28,286.34 per bond. c. Increase the supply of 3-year government bonds to reduce the price of the bonds. d. Buy any quantity of bonds at the prevailing price. Sell any quantity of bonds at $28,838.83 per bond.
Annuity The market forces in financial markets are determining that all asset yields (interest rates) are equal to 5% a year. A government bond issued today pays $10,000 a year for each of the next three years, and therefore, the price of the bond today is approximately $27,232.50. Suppose that you are the governor of the Reserve Bank of Australia and you want to reduce the interest rate to 2% implementing yield-curve control policy. What would you do? a. Buy 50% of the stock of bonds. b. Buy any quantity of bonds at $28,286.34 per bond. c. Increase the supply of 3-year government bonds to reduce the price of the bonds. d. Buy any quantity of bonds at the prevailing price. Sell any quantity of bonds at $28,838.83 per bond.
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter8: Savings,investment And The Financial System
Section: Chapter Questions
Problem 1PA
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