What is the term structure of interest rates and how is it related to the yield curve? What information is required to plot a yield curve? Describe an upward-sloping yield curve and explain what it has to say about the behavior of interest rates. Do the same for a flat yield curve.
Answer to relevant QuestionsHow might you, as a bond investor, use information about the term structure of interest rates and yield curves when making investment decisions? Why is the reinvestment of interest income so important to bond investors? A bond is currently selling in the market for $1,170.68. It has a coupon of 12% and a 20-year maturity. Using annual compounding, calculate the promised yield on this bond. Two bonds have par values of $1,000. One is a 5%, 15-year bond priced to yield 8%. The other is a 7.5%, 20-year bond priced to yield 6%. Which of these has the lower price? Elliot Karlin is a 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the bank’s investments department, he’s well aware of the concept of duration and decides to apply ...
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