If the equilibrium price in the bond market for a one-year discount bond is $9400, then the equilibrium interest rate in the loanable funds market must be
A)4%.
B)6%.
C)6.4%.
D)9.4%.

Question

Quizplus · Accepted Answer

The price of a one-year discount bond is calculated using the formula: price = face value/(1+interest rate). Rearranging the formula to solve for the interest rate, we get: interest rate = (face value/price) - 1. Plugging in the given price of $9400 and assuming a face value of $10000, we get an interest rate of (10000/9400) - 1 = 0.064 = 6.4%. Therefore, the correct answer is choice C.

If the Equilibrium Price in the Bond Market for a One-Year