18) Term Structure of Interest Rates Flashcards
1
Q
What is Yield to Maturity of a Zero-coupon bonds
A
2
Q
How can we write bond price in terms of Yield to Maturity
A
3
Q
Describe the proof that
A
4
Q
What is the forward interest rate
A
5
Q
Describe the proof of the forward interest rate
A
6
Q
What is the term structure of interest rates
A
The graph of the time-averaged interest rate over the future time interval [0, T] as a function of T. This average is given by -
7
Q
What is risk of default
A
The risk that the issuer cannot pay the holder the face value at maturity as promised in the contract
8
Q
What is yield spread
A
If the risk of default is non-negligible, then the holder should expect to pay less for the bond and therefore the yield should be higher. This increase in the yield is called the yield spread
