Theory: No investor would willingly hold a bond (which carries some risk) that pays a negative nominal interest rate when he'she could carry cash with the zero nominal interest rate. FRED de ing wtor Gemany nmarfor n wiher a tor S 10y Empirical Evidence: The chart above shows the nominal interest rate on 10-year govermment bonds for Germany, Japan, France, and Sweden, respectively, from 2015 to the present. We observe that nominal interest rate on 10-year govermment bond has been negative at least once for each country during this interval. Why does theory disagree with the evidence? Explain.
Theory: No investor would willingly hold a bond (which carries some risk) that pays a negative nominal interest rate when he'she could carry cash with the zero nominal interest rate. FRED de ing wtor Gemany nmarfor n wiher a tor S 10y Empirical Evidence: The chart above shows the nominal interest rate on 10-year govermment bonds for Germany, Japan, France, and Sweden, respectively, from 2015 to the present. We observe that nominal interest rate on 10-year govermment bond has been negative at least once for each country during this interval. Why does theory disagree with the evidence? Explain.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![Theory: No investor would willingly hold a bond (which carries some
risk) that pays a negative nominal interest rate when he/she could carry cash with
the zero nominal interest rate.
FRED
Severnment Bond d10yMan uing nmarkfor Germany
venment Bond eid 10yMannduding Bendmar for pan
Long Tem Gevementond e 10yr Man udingendmarfor france
uding Bendmarkfor Sweden
mentnd 10y
84
42
my
44
2021
and Development
Empirical Evidence: The chart above shows the nominal interest rate on 10-year
govemment bonds for Germany, Japan, France, and Sweden, respectively, from 2015
to the present. We observe that nominal interest rate on 10-year government bond
has been negative at least once for each country during this interval.
Why does theory disagree with the evidence? Explain.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffcc1c64f-36d5-4ac2-a934-81b05d7b46f9%2Fd3eaa89e-1bcf-4337-bb95-f4730a2e8b13%2Ffxvueon_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Theory: No investor would willingly hold a bond (which carries some
risk) that pays a negative nominal interest rate when he/she could carry cash with
the zero nominal interest rate.
FRED
Severnment Bond d10yMan uing nmarkfor Germany
venment Bond eid 10yMannduding Bendmar for pan
Long Tem Gevementond e 10yr Man udingendmarfor france
uding Bendmarkfor Sweden
mentnd 10y
84
42
my
44
2021
and Development
Empirical Evidence: The chart above shows the nominal interest rate on 10-year
govemment bonds for Germany, Japan, France, and Sweden, respectively, from 2015
to the present. We observe that nominal interest rate on 10-year government bond
has been negative at least once for each country during this interval.
Why does theory disagree with the evidence? Explain.
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