Question

What happens to Bond prices, quantities and interest rates if (Make sure to include the supply and demand graph for bonds for each question

a) reduction in wealth

b) Increase in risk

c) Increase in liquidity

Answer 1

This is Answer for the various reasons for effect on Bond price, bond quantity & interest rate.

1).Reduction in wealth :-

Every reduction in wealth result into decrease in the demand of the bond which affect price & rate of interest of the such bond

Any perchantage reduction in the wealth of the citizens affected the purchasing power of the citizens of the nation, this by effect affects the demand of bond as a result of that interest rate also decrease as demand of the bond decrease.

2) Increased in Risk :-

As a factor effect the increased in the risk for bond price volatility increase the risk for buyers of the bond in effect the bond demand will may be decrease.

At another point as increasing the risk factor Demand may be increased as rule of '' HIGHER THE RISK HIGHER THE RETURN''.

3)Increase of Liquidity :-

As a result of increasing the markets acceptance to the bond branding image the proportional Liquidity increase.

As rule of thumb the after acceptance of the bond brand the liquid nature is growing therefor interest rate decreasing as a effective of increase in demand of the in the market.