Ask Question
16 April, 14:41

Related to the Solved Problem 4.3] According to an article in the Wall Street Journal in early 2016, "U. S. government bonds maturing in more than 25 years returned a negative 1.2% in the month through Thursday after chalking up a 8.7% gain between January and March. The reversal reflects a shift in financial markets' preoccupation from the prospect of a recession to the risk of higher inflation." Source: Min Zeng, "It Didn't Pay to Bet Against Inflation in April," Wall Street Journal, April 29, 2016 An increase in expected inflation will shift the demand curve equilibrium with a and the supply curve resulting in a new V price the nominal interest rate on both short-term and long-term bonds. The longer An increase in expected inflation will the maturity of a bond the ▼| the change in price as a result of a change in market interest rates. As a result, capital losses on long-term bonds will be V than capital losses on short-term bonds

+2
Answers (1)
  1. 16 April, 16:07
    0
    Increasing inflation expectations will change the demand curve to the left and the supply curve to the right, resulting in a fall in the price of the equilibrium. therefore new equilibrium occurs at a reduced price

    Since Nominal rate of interest = Real interest rate + Inflation rate.

    As a result, the rise in expected inflation will boost the nominal rate of interest on both quick-term and lengthy-term bonds.

    The longer the bond maturity, the greater the volatility in price. The longer the maturity of the bond, the larger / bigger the price change as a result of market interest rate changes. As a result, long-term capital losses will be more than short-term capital losses.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Related to the Solved Problem 4.3] According to an article in the Wall Street Journal in early 2016, "U. S. government bonds maturing in ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers