Answer: Country C

## Explanation The correct answer is **Country C** because it has the lowest real interest rate. To calculate the real interest rate, we use the formula: $$ R_{\text{real}} = \frac{1 + R_{\text{nom}}}{1 + R_{\text{infl}}} - 1 $$ **Calculations:** - **Country A**: $ \frac{1 + 0.039}{1 + 0.019} - 1 = \frac{1.039}{1.019} - 1 = 1.0196 - 1 = 0.0196 $ or **2.0%** - **Country B**: $ \frac{1 + 0.041}{1 + 0.020} - 1 = \frac{1.041}{1.020} - 1 = 1.0206 - 1 = 0.0206 $ or **2.1%** - **Country C**: $ \frac{1 + 0.042}{1 + 0.023} - 1 = \frac{1.042}{1.023} - 1 = 1.0186 - 1 = 0.0186 $ or **1.9%** - **Country D**: $ \frac{1 + 0.046}{1 + 0.025} - 1 = \frac{1.046}{1.025} - 1 = 1.0205 - 1 = 0.0205 $ or **2.0%** **Summary of Real Interest Rates:** | Country | Real Interest Rate | |---------|--------------------| | A | 2.0% | | B | 2.1% | | C | **1.9%** | | D | 2.0% | Country C has the lowest real interest rate at **1.9%**, making it the most favorable for issuing bonds as it represents the lowest cost of borrowing in real terms.

Author: LeetQuiz .