Do you want BuboFlash to help you learning these things? Or do you want to add or correct something? Click here to log in or create user.



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?
Answer
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?
Answer
?

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?
Answer
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%.
If you want to change selection, open original toplevel document below and click on "Move attachment"

Parent (intermediate) annotation

Open it
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

statusnot learnedmeasured difficulty37% [default]last interval [days]               
repetition number in this series0memorised on               scheduled repetition               
scheduled repetition interval               last repetition or drill


Discussion

Do you want to join discussion? Click here to log in or create user.