Economics 4. Figure 1 shows nominal yields on sovereign (i.e., government) two-year bonds. . (a) The debt-to-GDP ratio in the U.S. is relatively high at around 100%, but its bonds pay a low nominal interest rate. Give a reason this might be so. . (b) If inflation in Kenya is always 3%, what real return can purchasers of Kenyan bonds expect? . (c) If you purchased a ten-year bond in Vietnam, would you expect its interest rate to exceed or lie below 12%? Explain. . (d) In 2011 and 2012, Switzerland had annual deflation of around .5%. What real annual return would a Swiss resident earn from purchasing a Swiss two-year sovereign bond? Figure 1: Annual Interest Rates (or Yields) on Two-Year Government Bonds in 2011
