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Banking and Monetary Policy_Butkiewicz_Date__030210

Banking and Monetary Policy_Butkiewicz_Date__030210 -...

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Chapter 4 continued 44: term- how long will it be until bond is repaid 45: can buy 2 year or 1 year bond with sequence 48: we cannot know for sure what interest rates will be in the futures 49: returns on long term bonds are more volatile and riskier but people usually don’t want to take the risk. Some will accept it if there is a chance to hear a higher return. Turn premium- the extra interest to compensate for the longer term bond and greater risk. We must have this type of compensation in order to get people to buy bonds. 50: yield curve- graph of yields on bonds at different maturities assumer have the same return rate 51: higher interest rate is due to higher premium (the rate goes up more the longer the maturity is) 52: yield curve shows term structure of interest rates 53: if interest rates are expected to increase then future expected rates increase too. Extreme case is a negative slope—interest rates on short term are > on long term 56:
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