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The unemployment rate is 8%. The central bank is mulling injecting profuse liquidity to the financial...

The unemployment rate is 8%. The central bank is mulling injecting profuse liquidity to the financial markets. You have a choice of 17 year maturity versus 4 year maturity notes. All of them are selling above par. Be thorough.

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Answer #1

We will go for the 17-year maturity.

Due to increase in the liquidity in the financial markets, there will be an increase in the money supply and therefore the interest rate will decrease. The unemployment rate will decrease because of increase in the money supply. In future, the economy will operate at full employment level and for further growth, the government has to increase the interest rate. So 17-year maturity is the better option to get the benefit of higher interest rate.

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