Yield curve

The Living Yield Curve at SmartMoney.com More SEARCH Search or Quote Sunday March 15, 2009 9:44 PM ET HOME INVESTING SPENDING PERSONAL FINANCE TOOLS PORTFOLIO Login | Register | Help | Select FINANCIAL Bonds BIZ | Economy HELPLINE: | ETFs Have | Market a question Update |for Mutual SmartMoney? Funds | Short Email Termask@smartmoney.com Investing | Stocks or call us toll-free at 866-219-0687. SMALL BONDS Published September 29, 2000 | A AA MARKETS MY QUOTES MOST ACTIVE Index Price

shape of the yield curve. In your answer also discuss the uses of the yield curve in financial markets, why strips are used in the construction of yield curves and why investors would want to invest in zero coupon bonds or strips. The yield curve is a graph that plots the yields of similar-quality bonds against their maturities, ranging from shortest to longest. The relationship between yield and maturity is referred to as the term structure of interest rates. The Treasury yield curve is the base

Financial Modelling – Session VII Email: jcadete@clsbe.lisboa.ucp.pt Financial Modelling Joaquim Joaquim Cadete Cadete 1 How your work is going to be scored? Svensson Model: IR Swaps: CIR Model: Modeling Formalization (6) Functions Efficiency Gains (3) Functions Efficiency Gains (3) Further Improvements (5) Efficiency Gains (3) User’s Perspective Your Grade Financial Modelling Joaquim Cadete 2 Risk Management: the main concern… Counterparty

for borrowing funds from the surplus agents. A line that plots interest rate at a set point in time is the term structure or yield curve. Interest rates which may be short term or long term are linked to a

Carry 3. Extension to interest rate swaps 1. Bond Pricing – basic concepts Let’s say you have a 4 year 10% annual coupon bond, with a yield (‘yield to maturity’ or ‘yield to redemption’) of 12%. From this information, the price can be calculated as 93.93%. The price is calculated by pricing each of the bond’s cash flows using the yield to maturity (YTM) as a discount rate. Why? Because the YTM is defined as the rate which, if used to discount the bond’s cash

Examination One Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through

Analytic Skills 11) An inverted yield curve is a downward-sloping yield curve that indicates that short-term interest rates are generally higher than long-term interest rates. Answer: TRUE Diff: 1 Topic: Term Structure of Interest Rates Learning Obj.: LG 1 Learning Outcome: F-05 Question Status: Previous Edition AACSB Tag: Analytic Skills 12) A yield curve that reflects relatively similar borrowing costs for both short- and long-term loans is called a normal yield curve. Answer: FALSE Diff: 1 Topic:

you need to have in hand the prices, cashflows and spot rates. a. Compute yield using the formulas from class with the observed market price. You are going to recognize an immediate problem: timing of the coupons. To get over this problem, compute the yield under 2 alternative scenarios: rounding back to the last coupon date and rounding forward to the next coupon date. In both cases use the same price. Is the bond yield the same as in part 2? The answer is typically no. b. Using the cashflows

On September 15th 2008, Lehman Brothers, one of the United States’ largest investment banks, declared bankruptcy. This event occurred during the Great Recession, a time period where economic activities in the United States had significantly declined in the early 21st century. The Great Recession occurred for numerous reasons; however the primary reasons are due to the housing bubble as well as the subprime mortgage backed securities. What made matters worse during the recession was the day September

a? Explain. c. Using your findings in part a, draw a yield curve for U.S. Treasury securities. Describe the general shape and expectations reflected by the curve. d. What would a follower of the liquidity preference theory say about how the preferences of lenders and borrowers tend to affect the shape of the yield curve drawn in part c? Illustrate that effect by placing on your graph a dotted line that approximates the yield curve without the effect of liquidity preference. e. What would