Course Objectives Chapters 5 and 6 Econ 423 - Financial Markets Lauren Heller, Summer 2009 Chapter 5: Risk and Term Structure of Interest Rates Objectives – By the end of this chapter, you should be able to: o Explain the factors affecting the risk and liquidity structure of interest rates, as well as the determinants of the risk premium on a bond. o Clearly identify the empirical facts pertaining to shape of the yield curve and the movement of interest rates over time. o Differentiate between theories of term structure, and be able to explain the contributions of each theory toward explaining the “stylized facts” of expectations and term structure. o Calculate the effects of a change in marginal tax rates on the demand, prices, and equilibrium interest rates for municipal, corporate, and treasury bonds. o Using the expectations theory, calculate the interest rates at varying terms to maturity when given a series of anticipated future interest rates. o
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