Textbook Notes (368,317)
Canada (161,798)
Commerce (596)
COMM 121 (16)
Chapter 6

Chapter 6A

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COMM 121
Blair Robertson

Chapter 6A The Term Structure of Interest Rates Spot Rates and Yield to MaturitySo far we have assumed that interest rates are constant over the all future periods o They actually vary over timebecause inflation rates differ over timeThe spot rate is the interest rate over one period of the investmentPV If we want to calculate a single rate for the bond o PVknownsolve for r Graphing the Term StructureThe term structure describes the relationship of the spot rate with different maturitiesExplanations of the Term StructureWe will begin by defining the term forward rate and relate it to future interest ratesDefinition of the Forward RateIf an individual can earn a 10 spot rate over two years it is equivalent if he were to earn8 in the first year and 1204 during the second year o This hypothetical rate over the second year is the forward rate
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