06 - Interest Rate Structures

  1. Yield
    Total rate of return on an investment.

    Comprises investment income and capital gains (losses).
  2. Yield Curve
    A graph (of a point in time) of yields on a particular security with a range of terms to maturity.
  3. Term Structure of Interest Rates
    Relationship between interest rates and term to maturity for debt instruments in the same risk class.
  4. Normal (Positive) Yield Curve
    Long-term interest rates are higher than short-term rates.
  5. Inverse (Negative) Yield Curve
    Short-term interest rates are higher than long-term rates.
  6. Humped Yield Curve
    The shape of the yield curve changes over time from normal to inverse.
  7. Expectations Theory
    Explains the shape of a yield curve through current and future short-term interest rates.
  8. Segmented Markets Theory
    All bonds are not perfect substitutes.

    Investors have different preferences when investing in either short or longer-term bonds.
  9. Arbitrage
    Simultaneously taking advantage of buy and sell price differences between markets.
  10. Liquidity Premium Theory
    Investors prefer short-term securities, therefore they require compensation to invest longer term.
  11. Liquidity Premium
    Compensation received for the increased risk of investing for a longer period.
Card Set
06 - Interest Rate Structures
230 - Interest Rate Structures