Class 8

Class 8 - • Fisher effect o Rnominal = Rreal int premium...

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Ch. 9: Bonds Bond value relationships: o Value of bond inversely related to changes in YTM If Fed buys a ton of bonds, prices will rise, so yields will fall Firms will borrow more o See notes on market value of a bond o As bond approaches maturity its value will converge toward its par value o Lone-term bonds have greater interest rate risk than short-term bonds
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Unformatted text preview: • Fisher effect: o Rnominal = Rreal + int. premium • Yield curve: o Usually upward sloping o Why are long-term rates not equal to short-term rates? Ex. 2 year rate is average of 1 year rate and forward rate Market’s expectation for next year’s rate...
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