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
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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.
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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