The yield curve in 2009 was very low, with short-term rates close to zero and lo
ID: 2767916 • Letter: T
Question
The yield curve in 2009 was very low, with short-term rates close to zero and long-term rates below 5 percent. What factors contributed to such low interest rates?
Please refer to table below for the following question.
Jones Company
Financial Information
December 2009
December 2010
Net Income
$2,000
$4,000
Accounts receivable
750
950
Accumulated depreciation
1,000
1,500
Common stock
4,500
5000
Paid-in capital
7,500
8500
Retained earnings
1,500
3,500
Accounts payable
750
750
December 2009
December 2010
Net Income
$2,000
$4,000
Accounts receivable
750
950
Accumulated depreciation
1,000
1,500
Common stock
4,500
5000
Paid-in capital
7,500
8500
Retained earnings
1,500
3,500
Accounts payable
750
750
Explanation / Answer
Factors contributed to such low interest rates are as follows:-
The Government adopted policies to reduce interest rates in order to stimulate economic activity. Recession also plays a great role in it as it caused a decrease in the demand for borrowed funds, and investors scared off by these large declines in the stock market which make them to move there money into safer side ie in U.S. Treasury securities which cause decrease in yields.
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