Question

Suppose the U.S. Treasury issued $50 billion of short-term securities and sold them to the public. Other things held constant, wh would be the most likely effect on short-term securities' prices and interest rates? A. There is no reason to expect a change in either prices or interest rates. B. Prices and interest rates would both decline. C. Prices and interest rates would both rise. D. Prices would decline and interest rates would rise. E. Prices would rise and interest rates would decline.

Answer 1

Answer: D. Prices would decline and interest rates would rise.

Step-by-step explanation:

Increase in Supply: When the supply of a financial instrument, such as short-term securities, increases, other things being equal, prices tend to fall because there are more securities available for purchase, which can put downward pressure on prices.

Effect on Interest Rates: As prices of existing securities fall, their yields (interest rates) tend to rise. This is because as prices go down, the fixed interest payments on these securities become a higher percentage of the lower price, resulting in a higher yield.

So, an increase in the supply of short-term securities is likely to lead to a decrease in their prices and an increase in interest rates. Option D correctly describes this scenario.

Answer 2

D. Prices would decline and interest rates would rise.

Step-by-step explanation:

since the U.S. Treasury issued $50 billion of short-term securities and sold them to the public the will be a lot of supply and the demand will be low.

As a results of that orice will decrease and hence to kepp hold of that the price will decrease and the intreset rates would rise.