Chapter_17-Bond_Yields_and_Prices

Chapter_17-Bond_Yields_and_Prices - Bond Yields and and...

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ond Yields Bond Yields nd Prices and Prices Chapter 17 Charles P. Jones, Investments: Analysis and Management, Tenth Edition, John Wiley & Sons Prepared by G.D. Koppenhaver, Iowa State University 17-1
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Interest Rates ates and basis points ± Rates and basis points ¾ 100 basis points are equal to one percentage point ± Short-term riskless rate rovides foundation for other rates ¾ Provides foundation for other rates ¾ Approximated by rate on Treasury bills ¾ Other rates differ because of ± Maturity differentials ± Security risk premiums 17-2
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Interest Rates aturity differentials ± Maturity differentials ¾ Term structure of interest rates ± Accounts for the relationship between time and p yield for bonds the same in every other respect ± Risk premium ¾ Yield spread or yield differential ¾ Associated with issuer’s particular situation 17-3
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Determinants of Interest Rates eal rate of interest ± Real rate of interest ¾ Rate that must be offered to persuade individuals to save rather than consume ¾ Rate at which real capital physically reproduces itself ± Nominal interest rate ¾ Function of the real rate of interest and expected inflation premium 17-4
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Determinants of Interest Rates arket interest rates on riskless debt ± Market interest rates on riskless debt real rate +expected inflation isher Hypothesis ¾ Fisher Hypothesis ± Real rate estimates obtained by ubtracting the expected inflation rate subtracting the expected inflation rate from the observed nominal rate eal interest rate is an ex ante concept ± Real interest rate is an ex ante concept 17-5
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Measuring Bond Yields ield to maturity ± Yield to maturity ¾ Most commonly used romised compound rate of return received ¾ Promised compound rate of return received
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This note was uploaded on 06/02/2011 for the course FINA 3331 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.

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Chapter_17-Bond_Yields_and_Prices - Bond Yields and and...

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