As a result of the perceived riskiness of alternative investments following the financial crisis of 2007-2009,the bond market was affected in all of the following ways EXCEPT
A) higher demand for bonds.
B) higher real interest rates.
C) lower nominal interest rates.
D) higher price of bonds.

Question

Quizplus · Accepted Answer

The perceived riskiness of alternative investments led to investors seeking safer investments, such as bonds, which increased demand for bonds. Higher demand typically leads to a higher price of bonds (D) and lower nominal interest rates (C), as there is less need for issuers to offer higher yields to attract investors. However, higher real interest rates (B) would not be a result of the increased demand for bonds. Real interest rates are determined by the nominal interest rate minus the expected rate of inflation, and the increase in demand for bonds would not affect the expected rate of inflation.

As a Result of the Perceived Riskiness of Alternative Investments