Topic 12 Exercise 2Bond Prices and YieldsYield CurveInterest rates are one of the most important indicators of the future of the economy and they are used extensively by Wall Street analysts. Since the rates on bonds of different maturities behave quite independently with short-term and long-term rates often moving in opposite directions simultaneously, we need to have some understanding of the yield curve. This pattern of interest rate movement can be used to predict economic activity in the future and get a reading of the collective market instinct. The Living Yield Curvedescribes different term structures that have been observed in the last thirty plus years. After reviewing the material on the shapes of yield curves available on the sight, answer the following questions:1. Describe the yield curve and how it is constructed.The Yield curve is what economists use to capture the overall movement of interest rates (which are known as “yields” in Wall Street parlance). Plot today’s yields for various
This is the end of the preview.
access the rest of the document.