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ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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
Transcribed Image Text:600
Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph.
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
?
Interest Rate (Percent)
40
36
32
20
24
16
A
8
4
0
500 600
700 800 900 1000
Price of Bond (Dollars)
1100 1200 1300
Relationship
The line showing the relationship between bond prices and interest rates has a
relationship between bond prices and interest rates.
slope; in other words, there is

Transcribed Image Text:4. Bond prices and interest yields
Consider a bond without expiration date that makes a fixed interest payment of $240 per year.
Complete the following table by calculating the interest rate on the bond at different sale prices. (Hint: The effective interest rate on a bond is a ratio
of the interest payment to the sale price of the bond times 100.)
Price of Bond
(Dollars)
1,200
1,000
750
600
Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph.
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
Interest Rate (Percent)
40
36
32
28
24
20
16
Interest Rate
(Percent)
12
Relationship
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