Assuming the chances of being paid back are the same, would a nominal interest rate of 10 percent always be more attractive to a lender than a nominal rate of 5 percent? Explain.
Answer to relevant QuestionsSuppose two parties agree that the expected inflation rate for the next year is 3 percent. Based on this, they enter into a loan agreement where the nominal interest rate to be charged is 7 percent. If inflation for the ...How does inflation affect nominal interest rates? a. Plot the three-month U.S. Treasury bill rate (FRED code: TB3MS) from 1960 to the present. What long-run pattern do you observe? What may have caused this pattern? b. Plot ...Car insurance companies sell a large number of policies. Explain how this practice minimizes their risk.Mortgages increase the risk faced by homeowners.a. Explain how.b. What happens to the homeowner’s risk as the down payment on the house rises from 10 percent to 50 percent.Another way to understand stock market risk is to examine how investors expect risk to evolve in the near future. The DJIA volatility index (FRED code: VXDCLS) is one such measure. Plot the level of this volatility index ...
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