If Investors Perceive Greater Interest Rate Risk,what Will Happen to the Equilibrium

question 91

Essay

If investors perceive greater interest rate risk,what will happen to the equilibrium interest rate in the bond market? Explain using the bond demand and supply framework.

---

Definitions:

Default Chance

The probability that a borrower will fail to meet the obligations of a loan or debt.

Monthly Interest Rate

The percentage of a sum of money charged for its use per month, often used in reference to loans or credit balances.

Accounts Receivable Balance

The aggregate sum of funds that customers owe a company for products or services that have been provided but remain unpaid.

Operating Cycle

The duration of time from the purchase of inventory to the collection of receivables from sales, outlining how long it takes for a company to turn investments in inventory into cash.