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ycow [4]
3 years ago
15

The required rate of return on a certain bond changes from 12 percent to 8 percent, causing the price of the bond to change from

$900 to $1,100. Determine the bond's price elasticity.
Business
1 answer:
Olenka [21]3 years ago
5 0

Answer:

the bond's price elasticity = - 0.67

Explanation:

present bond value = $1100

previous bond value = $900

change in bond value = $1100 - $900 = $200

present bond percentage = 8%

previous bond percentage = 12%

% change in bond value = 8% - 12% = - 4%

Bond price elasticity = \frac{change  in bond value}{previous bond value}/\frac{change in percentage}{previous percentage}

                                  = \frac{200}{900} / \frac{-4}{12}

                                  = \frac{2}{9} * -3

                                  = - 0.67

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A bank has $500 in checking deposits. Interest and noninterest costs on these accounts are 6%. This bank has $250 in savings and
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