4. You buy a EUR 5,000,000 5-year zero coupon bond with a semi-annual Yield-to-Maturity of 1.50%. How much interest do you get at the end of year 2? a. USD 150,000 b. USD 300,000 c. USD 0 d. USD 75,000

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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.