Under the no arbitrage condition, when T increases, does the discount factor Z(0,T) necessarily increase or decrease?
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Question:
Under the no arbitrage condition, when T increases, does the discount factor Z(0,T) necessarily increase or decrease? Why? When T increases, does the yield r(0,T) necessarily increase or decrease? Why? Please try to explain in detail.
Expert Answer:
Under the noarbitrage condition the relationship between the discount factor Z0T and the yield r0T as the time to maturity T increases is as follows 1 ... View the full answer
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