Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 25.A, Problem 1P
To determine

To explain the differences’ interest rates.

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Ef 379.
The table below shows interest rates on 10-year bonds for a sample of American countries (Source: Bloomberg, 08/2018). What factors explain why the rate for a 10-year bond is higher in Brazil and Mexico than US and Canada? 10-Year Government Bond Yields COUNTRY United States Canada Brazil Mexico YIELD 2.88% 2.30% 11.81% 7.77% A higher default risk for Brazil and Mexico and lower expected inflation in US and Canada. A lower default risk for Brazil and Mexico and lower expected inflation in US and Canada. A higher default risk for Brazil and Mexico and higher expected inflation in US and Canada. A lower default risk for Brazil and Mexico and higher expected inflation in US and Canada.
The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond. One-Year Bond Rate 2.00% 3.00% 6.00% 7.00% 8.00% 31 = 141 = 151 = The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places.) 11 = 0% ¹21 = % 1% 1% Year 1 2 % 3 4 5 Multiyear Bond Rate 2.00% 4.00% 6.00% 9.00% 12.00%
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