Question : The demand curve and supply curve for one-year discount bonds were estimated using the following equations:?
The demand curve and supply curve for one-year discount bonds were estimated using the following equations:
B^d: Price = -2/5 Quantity + 940
B^s: Price = Quantity + 500

Following a dramatic increase in the value of the stock market, many retirees started moving money out of the stock market and into bonds. This resulted in a parallel shift in the demand for bonds, such that the price of bonds at all quantities increased $ 50. Assuming no change in the supply equation for bonds, what is the new market interest rate?
discount moving supplies

Best answer:

Answer by Asdru
I do not see how to connect the content of problem to market interest rate.
Changes in price bonds means change in an implicit interest rate present in the documents; here we are talking about the interest rates of documents, not the interest rates of market.
The money which did leave the stock market did entry to bonds market so the money does not leave market interest.
I could say if the money does not leave the market interes then the rate does not change, but the problem is that stock market could impact with more force the market interest than the market bonds.