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Let us think of a zero coupon bond with FV $1,000 with maturity of 2 years. The following table shows the supply and demand of

  1. Let us think of a zero coupon bond with FV $1,000 with maturity of 2 years. The following table shows the supply and demand of bonds at different prices.

FV

Maturity

Price

Interest rate

Demand (quantity in million)

Supply

(quantity in million)

1000

2

650

800

100

1000

2

700

600

300

1000

2

750

400

400

1000

2

800

200

600

1000

2

850

50

800

1000

2

900

10

1000

  1. Calculate the interest rates of this bond at different prices and fill up the blank cells. (5 points)
  2. Do you think there would an excess supply or excess demand of bond at $900? Why? What would happen to the price? (5 points)

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