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Unformatted text preview: 3 shapes usually the yield curve is ascending Expectations theory on yield curve I2y= [i1y_i1y^e]/2 LT I is average of current and future ST If interest is equal over time period investor chooses ST bond Thus: i2y = [(i1y+i31y}/2]+h2 H2 is risk premium of position that cant unwind halfway through...
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- Fall '10
- Interest Rates