The German Federal Government Bond has the following yields according to maturity: 1yr: -0.435 2yr: -0.08 Зyr: 0.086 4yr: 0.226 5yr: 0.349 6yr: 0.376 7yr: 0.388 8yr: 0.412 9yr: 0.441 10yr: 0.51 20yr: 0.563 30yr: 0.642 Similarly, for the United States of America: 1yr: 1.72 2yr: 2.43 Зyr: 2.61 10yr: 2.42 20yr: 2.64 30yr: 2.48 7yr: 2.52 5yr: 2.56 ad) What is the shape of the German Federal Government Bond's yield curve? Sketch out the yield curve. b) What is happening with the German 1 and 2yr bond interest rates? Why do you think this Is? C) Compare the return on German bonds to USA bonds. Which of the two countries do investors consider the safer option? d) Bond

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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The German Federal Government Bond has the following yields according to maturity:
1yr: -0.435
2yr: -0.08
3yr: 0.086
4yr: 0.226
5yr: 0.349
6yr: 0.376
7yr: 0.388
8yr: 0.412
9yr: 0.441
10yr: 0.51
20yr: 0.563
30yr: 0.642
Similarly, for the United States of America:
1yr: 1.72
2yr: 2.43
Зyr: 2.61
10уг: 2.42
20yr: 2.64
30yr: 2.48
7yr: 2.52
Бyr: 2.56
a) What is the shape of the German Federal Government Bond's vield curve? Sketch out the yield
curve.
b) What is happening with the German 1 and 2yr bond interest rates? Why do you think this is?
c)
Compare the return on German bonds to USA bonds. Which of the two countries do investors
consider the safer option?
d)
Bonds are usually reported in nominal terms. Inflation for the US during the past year was
approx. 7.5%. Inflation in Germany was approx. 3.1%. Does this information change your answer
to part c)?
Transcribed Image Text:The German Federal Government Bond has the following yields according to maturity: 1yr: -0.435 2yr: -0.08 3yr: 0.086 4yr: 0.226 5yr: 0.349 6yr: 0.376 7yr: 0.388 8yr: 0.412 9yr: 0.441 10yr: 0.51 20yr: 0.563 30yr: 0.642 Similarly, for the United States of America: 1yr: 1.72 2yr: 2.43 Зyr: 2.61 10уг: 2.42 20yr: 2.64 30yr: 2.48 7yr: 2.52 Бyr: 2.56 a) What is the shape of the German Federal Government Bond's vield curve? Sketch out the yield curve. b) What is happening with the German 1 and 2yr bond interest rates? Why do you think this is? c) Compare the return on German bonds to USA bonds. Which of the two countries do investors consider the safer option? d) Bonds are usually reported in nominal terms. Inflation for the US during the past year was approx. 7.5%. Inflation in Germany was approx. 3.1%. Does this information change your answer to part c)?
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