In 2007, as Stock Prices in General Were Falling, Many

question 125

Essay

In 2007, as stock prices in general were falling, many investors began switching their funds into purchasing bonds.Surveys suggest that many of these investors did not understand the basic relationship between bond prices and interest rates.Using a numerical example, illustrate how an increase in the demand for bonds would affect the interest rate paid on bonds.

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Definitions:

Anticline

A fold, generally concave downward, with the oldest rocks in the center.

Syncline

A fold, generally concave upward, with the youngest rocks in the center.

Cleavage

A property of minerals that describes their tendency to break along flat surfaces based on their crystalline structure.

Strike-Slip Fault

A type of fault where rocks on either side move horizontally past one another, typically a result of shear stress.