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Money and banking assignment

December 14, 2020

The game unfolds in two stages. In the first stage speculators buy bonds from issuers. In the second stage the speculators try to make a profit by selling their bonds to bond buyers. Bond issuers are given instructions reading: You are raising capital to finance a business expansion. You issue this bond. The market interest rate is 4%. Speculators are given instructions reading: You buy and sell bonds to earn a quick profit. The market interest rate is 4%. The issuers and speculators then negotiate a price. Considering the information given, what price should a speculator pay for this bond? ___________________________________ In the second stage of the game, the speculators turn around and try to sell the bonds to the bond buyers, hopefully at a profit. The crucial difference between the two stages is the interest rate, which had risen to 6%. The buyers are given instructions reading: You are buying bonds to earn interest. You can buy either corporate bonds or Government bonds. Either is just as good as the other. The speculators and buyers then negotiate a price. Considering the information given, what price should a buyer pay for this bond? ___________________________________