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:

Collateral

Assets pledged by a borrower to secure a loan or other credit, and subject to seizure on default.

Original

In legal and official documents, "original" refers to the first form or version of a document that has not been copied, altered, or replicated.

Obligation

A legal or moral duty to do or refrain from doing something.

Statute of Frauds

a legal principle that requires certain types of contracts to be written and signed by the party being charged with the obligation to be enforceable.