Assuming Everything Else Constant,what Effect Will Each of the Following

question 51

Essay

Assuming everything else constant,what effect will each of the following have on the long-term real interest rate?
a. The expected inflation rate decreases.
b. The default-risk premium increases.
c. Investors expect future short-term interest rates to fall.

---

Definitions:

Discount Yield

A measure of a bond's return, calculated as the bond's discount from its face value divided by its face value, expressed as a percentage.

Bond Market

The financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities, known as the secondary market.

Over-The-Counter Market

A decentralized market, without a central physical location, where participants trade stocks, commodities, currencies, or other instruments directly between two parties without a broker's intermediation.

Bond Dealers

Entities that trade in bond securities, acting as intermediaries between buyers and sellers in the bond market.