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2. Use TWO bond markets to address the following scenario. Assume you receive news that Company A just received a large government contract. You also

2. Use TWO bond markets to address the following scenario. Assume you receive news that Company A just received a large government contract. You also know that Company B (a competitor) did not receive a government contract. Assume this news only affects the supply of bonds for Company A and the demand for bonds for Company B.

a. Use a diagram to help explain (in words) how this information affects the bond market for Company A.

b. Compare the new equilibrium price with the original equilibrium price in this market. What happens to the yield to maturity on bonds for company A?

c. Use a diagram to help explain (in words) how this information affects the bond market for Company B.

d. Compare the new equilibrium price with the original equilibrium price in this market. What happens to the yield to maturity on bonds in the spillover market?

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