Question
The demand curve for a Treasury bond is P=-2/5*Q+940, while the supply curve for that Treasury bond is P=Q+500, where P is the price of
The demand curve for a Treasury bond is P=-2/5*Q+940, while the supply curve for that Treasury bond is P=Q+500, where P is the price of the bond and Q is the quantity of the bond. The demand curve for a corporate bond is P=-0.3Q+900, while the supply curve for that corporate bond is P=0.9Q+400.What is the risk premium based on the Treasury bond and the corporate bond in this question? Assume that both the Treasury bond and the corporate bonds are discount bonds. Also, assume that both bonds have a $1000 face value and will mature in one year. Note that, since this Treasury bond has maturity equal to one year, it should be call T-bill. I call it a Treasury bond here to be consistent with the lecture notes.
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