Tags
#finance #steiner-mastering-financial-calculations-3ed
Question
a "flat" short-term yield curve - in our example, the 3-month and 6-month rates are the same at 10.0% - does it imply that the market expects interest rates to remain stable?
No, it implies the market expects rates to fall (geometric average, reinvestment; also rate compounded twice has to be smaller than equivalent non-compounded rate over the same period). In other words, 6 month is equivalent to 3 months from now (known) and next 3 months unknown. for this compounding to work out to 10%, next 3 months (unknown) must be lower than 10%.

Tags
#finance #steiner-mastering-financial-calculations-3ed
Question
a "flat" short-term yield curve - in our example, the 3-month and 6-month rates are the same at 10.0% - does it imply that the market expects interest rates to remain stable?
?

Tags
#finance #steiner-mastering-financial-calculations-3ed
Question
a "flat" short-term yield curve - in our example, the 3-month and 6-month rates are the same at 10.0% - does it imply that the market expects interest rates to remain stable?
No, it implies the market expects rates to fall (geometric average, reinvestment; also rate compounded twice has to be smaller than equivalent non-compounded rate over the same period). In other words, 6 month is equivalent to 3 months from now (known) and next 3 months unknown. for this compounding to work out to 10%, next 3 months (unknown) must be lower than 10%.
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a "flat" short-term yield curve - in our example, the 3-month and 6-month rates are the same at 10.0% - does not imply that the market expects interest rates to remain stable. Rather, it expects them to fall.

#### Original toplevel document (pdf)

owner: piotr.wasik - (no access) - Mastering Financial Calculations 3ed (Steiner), p93

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