Bill wants to buy a bond. It has a face value of $10,000, a bond rate of 4% (nominal), payable annually, and matures in 10 years. Bill wants to earn a minimum return of 5% per year. How much should Bill pay for the bond?

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.