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Term Structure of Interest Rates
Term Paper # 110330
Term Structure of Interest Rates
A critical evaluation of the theories that account for the phrase "term structure".
1,709 words (approx. 6.8 pages) |
6 sources |
MLA | 2005
Paper Summary:
The paper discusses what we mean by "term structure" of interest rate and reviews the literature of various theories that govern it. Based on the discussion the paper critically evaluates the theories that have been proposed to account for the "term structure". The paper is well illustrated with tables and graphs.Outline:
Introduction
Discussion
Conclusion
From the Paper:
"In a normal yield curve the shape (as shown below) is a concave curve formed on the basis of normal market conditions. In this market condition the investors assume that there is no significant change in the economy and that the interest rate continues to grow at a normal pace due to stable rate of inflation. Given the stable conditions of the market, investors expect high yield from fixed income instruments with long term maturities and expect a low yield from short term fixed income. This expectation is based on the rationale that since long term bond attaches high risks of the future, therefore it has high yield while in short term securities, the future is more predictable therefore pose low risks to the investors and hence low yield. In such a condition, when current interest rate increases the price of the bond decreases while the yield will increase."Sample of Sources Used:
- Elton, E.J., M.J. Gruber, S.J. Broen and W.N. Goetzmann. Modern portfolio theory and investment analysis (6th edition, 2003).
- Elton, E.J and M.J Gruber Bodie, Z., A.Kane and A.J Marcus. Essentials of investments. 2004.
- Turnovsky, Stephen J.The Term Structure of Interest Rates and the Effects of Macroeconomic Policy. Journal of Money, Credit & Banking. Volume: 21. Issue: 3. Publication Year: 1989. Page Number: 321+.
- Backus, David K. Jefferis Jr., R. H. and Zin, S.E. Long-Memory Inflation Uncertainty: Evidence from the Term Structure of Interest Rates. Journal Title: Journal of Money, Credit & Banking. Volume: 25. Issue: 3. Publication Year: 1993. Page Number: 681+.
- Fisher, W. H. and Turnovsky, S. J. Fiscal Policy and the Term Structure of Interest Rates: An Intertemporal Optimizing Analysis. Journal of Money, Credit & Banking. Volume: 24. Issue: 1. Publication Year: 1992. Page Number: 1+.
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Cite this paper
APA Citation:
Term Structure of Interest Rates (2012, January 15). Retrieved February 10, 2012, from http://www.academon.com/Term-Paper-Term-Structure-of-Interest-Rates/110330
MLA Citation:
"Term Structure of Interest Rates" 15 January 2012. Web. 10 Feb. 2012. <http://www.academon.com/Term-Paper-Term-Structure-of-Interest-Rates/110330>
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Published by:
JJean
Publisher Since:
Sep 21, 2008 I have studied in private institutions throughout my academic life. Although my highest degree is Bachelors of Commerce from the University of Karachi but I have had experience writing academic papers for the past 8 years. I have been exposed to numerous types and levels of term papers including but not limited to the field of business, management, advertising, construction, information technology, tourism, and the environment. I also have had experience in writing from schools to master level term papers.
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