Exam 15: The Term Structure of Interest Rates

The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000. What is, according to the expectations theory, the expected forward rate in the third year

The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000. What is, according to the expectations theory, the expected forward rate in the third year

Suppose that all investors expect that interest rates for the 4 years will be as follows: What is the price of a 2-year maturity bond with a 5% coupon rate paid annually (Par value = $1,000.)

The "break-even" interest rate for year n that equates the return on an n-period zero-coupon bond to that of an n - 1 - period zero-coupon bond rolled over into a one-year bond in year n is defined as

The on the run yield curve is

Term Structure of Interest Rates is the relationship between what variables What is assumed about other variables How is term structure of interest rates depicted graphically

If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows)

When computing yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the

Explain what the following terms mean: spot rate, short rate, and forward rate.Which of these is(are) observable today

Suppose that all investors expect that interest rates for the 4 years will be as follows: If you have just purchased a 4-year zero-coupon bond, what would be the expected rate of return on your investment in the first year if the implied forward rates stay the same (Par value of the bond = $1,000)

______ can occur if _____.

The most recently issued Treasury securities are called

The pure yield curve can be estimated

Suppose that all investors expect that interest rates for the 4 years will be as follows: What is the price of 3-year zero-coupon bond with a par value of $1,000

An upward sloping yield curve is a(n) _______ yield curve.

If the value of a Treasury bond was higher than the value of the sum of its parts (STRIPPED cash flows) you could

Discuss the theories of the term structure of interest rates.Include in your discussion the differences in the theories, and the advantages/disadvantages of each.

The yield curve

The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000. What is the price of a 4-year maturity bond with a 10% coupon rate paid annually (Par value = $1,000.)

The term structure of interest rates is