Suppose you just spent $1,000 on a bond. Minutes after you did, the central bank

Question

Suppose you just spent $1,000 on a bond. Minutes after you did, the central bank announced that is reducing the required fraction of each deposit that must be kept as reserves by private banks (that is, the central bank is reducing in our model). Private banks are welcoming the lower reserve requirement and the effects of this change can be seen immediately. Suppose you change your mind and decide you want to sell your bond. You should expect your bond to: sell for the same price you paid sell for a lower price than what you paid sell for a higher price than what you paid it cannot be determined with the information provided

Explanation / Answer

Here interest Rate are Reduced and the bond is issued prior to reduction means the bond value in the market has increased due to lowering of interest rate by FED and the bond is offering better returns as compared to market.

C is Correct Sell for higher price than what you paid as the bond is offering better returns.

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