06 - Interest Rate Structures

Total rate of return on an investment.

Comprises investment income and capital gains (losses).

A graph (of a point in time) of yields on a particular security with a range of terms to maturity.

Relationship between interest rates and term to maturity for debt instruments in the same risk class.

Long-term interest rates are higher than short-term rates.

Short-term interest rates are higher than long-term rates.

The shape of the yield curve changes over time from normal to inverse.

Explains the shape of a yield curve through current and future short-term interest rates.

All bonds are not perfect substitutes.

Investors have different preferences when investing in either short or longer-term bonds.

Simultaneously taking advantage of buy and sell price differences between markets.

Investors prefer short-term securities, therefore they require compensation to invest longer term.

Compensation received for the increased risk of investing for a longer period.