Positive interest rates on bonds in a world
Would there be positive interest rates on bonds in a world with absolutely no risk (no default risk, maturity risk, and so on)? Why would a lender demand and a borrower be willing to pay, a positive interest rate in such a no risk world?
Expert
There would be a positive interest rate in a world free of risk. This is because whether risk is there or not, lenders of money cannot spend during the time the money is loaned. So lenders lose the chance to invest their money for that period of time. To compensate for the cost of losing investment chances while they postpone their spending, borrowers pay on lenders demand, a basic rate of return, and the real rate of interest.
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