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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Question
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%
Chapter 25 Solutions
Principles of Economics (12th Edition)
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