why not just hold cash instead of bonds......

a. The real interest rate is frequently negative. Under what circumstances can it be negative? why not just hold cash instead of bonds? 1). Consider the risk premium formula presented in your textbook: [1 +i] = (1-p] (1+i+x]+p(0], the symbols have their usual meanings i. If the probability of bankruptcy is 10%, what is the risk premium if the interest rate on a risk free bond is 1%? Show your work. Calculate the nominal interest for a borrower when the probability of bankruptcy is 5% and the nominal policy interest rate is 3%. Show your work. ii. Using the graph for the extended IS_LM model (the one with real interest rate and output], analyze what happened during the 2008 Financial crisis. Explain clearly why policies failed to avoid a major recession? 12 10-year U.S. Treasuryr Yield 0' 'l I l' T l' i I Jan-00 Jan-02 Jan-o4 Jan-06 Jan-OB Jan-10 Jan-12 Jan-14 C. Using the graph for the extended IS_LM model (the one with real interest rate and output], analyze what happened during the 2008 Financial crisis. Explain clearly why policies failed to avoid a major recession