Class 7 Chapter 6 Bond Price and Yield Discussion Points

Class 7 Chapter 6 Bond Price and Yield Discussion Points -...

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Class 7 Second half Chapter 6 Bond Price and Yield Determination: Discussion Points I. Bond prices (hence yields) are determined by the Supply and Demand for Bonds. II. Know what determines Bond supply and demand. (Chapter 6 pg133 – pg149). The summary graphs on pg. 138 & 139 are particularly useful. Note that the graphs on these pages are for the primary market only and that the text is assuming that secondary bond prices will be equal to primary prices. These prices are found in the market data center bonds section of the WSJ. a. Does Gov’t budget Deficit affect S or D? How? b. Do general business prospects (businesses expected future) affect S or D? c. Does Wealth affect S or D? d. What is the affect e. f. Know how default risk affects bond prices g. Know how interest rate risk affects bond prices h. Know how expected inflation affects bond prices i. Be able to demonstrate all the above factors graphically III. As an illustration, using the Stock/Flow bond tool kit, draw a graph that illustrates the effects of expected inflation on bond prices and yields. To show the effects of changes in expected inflation on the S & D analysis below, add additional lines and drag and place the
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This note was uploaded on 02/22/2012 for the course MANEC 453 taught by Professor Jerrynelson during the Winter '10 term at BYU.

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Class 7 Chapter 6 Bond Price and Yield Discussion Points -...

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