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Unformatted text preview: Do you get the same effect on interest rates, as in part d? Chapter 4 and 5: 2. On 9/17/08 the 3-month Treasury bill rate became negative at some points during the day. The last time this happened in the US was in 1940! Recall, T-bills are discount bonds. To understand the workings of this event, answer the following questions. (As always, assume that the face value on the bonds is $1000.) a. Suppose you have a discount bond with one year to maturity. For the yield on the bond to be negative, what must the price of the bond be? b. Suppose you have an 8% coupon bond that makes annual coupon payments and has three years to maturity. For the yield to be zero what price must the bond be selling at? What must the price be for the yield to be negative? c. Use the demand and supply for bonds framework to graphically depict this situation....
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- Fall '11
- Interest Rates