2011 - 2.3.2010FinancialMarkets YieldCurve o

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2.3.2010 Financial Markets Yield Curve o Relationship of bond yields and maturity o Any changes in interest change have more of an effect the longer  we go out Any change in interest today larger affect in future o Yield Curve is positively sloped. o People supply bonds during a recession stock prices usually fall but  bonds are safe and not risky During times of uncertaintly people buy US treasury and gold. Stocks to bonds Price of bonds goes up but yield flattens out Says bad times are coming out because yield curve  inverts  o Front end is higher than back end o Inversion means bad times coming along  soo0o0o0o0o0 DUMP YOUR STOCKS Stocks and Bonds o Suppose a firm needs money to buy a factory or equipment How does it get it? Lots of ways a firm can get money 1. Retained earnings o previous profits they had that they didn’t disperse 2. Sell off part of company
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o sell stocks o gives owner of stocks voting rights can borrow (sell bonds) * if company goes bankrupt they have to pay bond  owners first and then the stock owners get paid o stocks riskier to own than bonds
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This note was uploaded on 03/23/2011 for the course ECON 2 taught by Professor Rupert during the Winter '08 term at UCSB.

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2011 - 2.3.2010FinancialMarkets YieldCurve o

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