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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain.

a. a bond of the U.S. government or a bond of an Eastern European government

b. a bond that repays the principal in year 2020 or a bond that repays the principal in year 2040

c. a bond from Coca-Cola or a bond from a software company you run in your garage

d. a bond issued by the federal government or a bond issued by New York State

Subpart (a):

To determine

The interest rate of different bonds.

Explanation

The bonds are the financial market instruments used by the people in the economy. The bond is an income investment which is fixed and thus it acts as a certificate of indebtedness. They are traded on exchange and they entail the risk to the investor in bond. The bond pays interest to the loan provider and borrowers have to pay the agreed interest rate and total sum after the maturity of the bond. The bonds have lower levels of risk compared to the stocks...

Subpart (b):

To determine

The interest rate of different bonds.

Subpart (c):

To determine

The interest rate of different bonds.

Subpart (d):

To determine

The interest rate of different bonds.

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