The Federal Reserve Bank of the United States (the FED) decides it wants to reduce...
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Finance
The Federal Reserve Bank of the United States (the FED) decides it wants to reduce the money supply. It decides it wants to sell 10 year treasury bonds with the following characteristics: Par Value $1,000, Coupon Payment of $50 annually, with 8 years remaining to maturity. It offers the bond to you at a price adjusted by 10%. What is the original yield on the bond?
Because it wants to reduce the money supply will it sell the bond at a 10% discount or at a 10% premium. What becomes the current yield on the bond after the sale? When the bond reaches maturity and the treasury buys the bond back at the original par value, what else do you gain from buying this bond from the FED? What will be happening to all interest rates when the FED completes the open market operation, so not just your bond, all of the bonds bought or sold?
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