Bus 315 - Week5

Bus 315 - Week5 - Week 5 Fixed Income Securities II: The...

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Week 5 Fixed Income Securities II: The Term Structure of Interest Rates - Bodie et al., Ch. 14 1 Jorge Cruz Lopez - Bus 315: Investments
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The Term Structure of Interest Rates Objective: To explore the pattern of interest rates for different assets and times to maturity. 2 Jorge Cruz Lopez - Bus 315: Investments
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The Term Structure of Interest Rates 1. The Term Structure Under Certainty 2. Forward Rates 3. Theories of The Term Structure 4. Interpreting The Term Structure 3 Jorge Cruz Lopez - Bus 315: Investments
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1. The Term Structure Under Certainty 4 Jorge Cruz Lopez - Bus 315: Investments
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Overview of Term Structure of Interest Rates • Relationship between yield to maturity and maturity. • Information on expected future short term rates can be implied from yield curve. • The yield curve is a graph that displays the relationship between yield and maturity. • Two major theories are proposed to explain the observed yield curve. 5 Jorge Cruz Lopez - Bus 315: Investments
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Important Terms • Bond yields • Spot rates • Forward rates • Yield curve • Term structure or pure yield curve • Structure of forward rates • Using observed rates to predict future rates 6
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Yield Curves 7 Yields Maturity Upward Sloping Downward Sloping Flat Jorge Cruz Lopez - Bus 315: Investments
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Yield to Maturity and Prices 8 Jorge Cruz Lopez - Bus 315: Investments
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Two 2-Year Investment Programs 9 Jorge Cruz Lopez - Bus 315: Investments
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Short Rates vs. Spot Rates 10 Jorge Cruz Lopez - Bus 315: Investments
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11 Jorge Cruz Lopez - Bus 315: Investments
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Bus 315 - Week5 - Week 5 Fixed Income Securities II: The...

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