Calculate the equilibrium interest rate and dollar amount -

Point Price of bond Interest rate (i) Demand
A $925 (1000 – 925)/ 925 = 8.1% $100 billion
B $800 (1000 – 800)/ 800 = 25% $400 billion

Table 2: Supply of Bonds

Point Price of bond Interest rate (i) Demand
A $925 8.1% $400 billion
B $800 25 % $100 billion

Draw the demand and supply schedules for bonds using:

X- axis : $Amount
Y- axis: Interest rate

Calculate the equilibrium interest rate and dollar amount. Interpret this graph using the Loanable funds theory.

Discuss various factors that affect the demand for bonds and supply of bonds.

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