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 can’t unwind halfway through...
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This document was uploaded on 11/02/2011 for the course ECO 301 at Miami University.
- Fall '10
- Interest Rates