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Key Terms:

  • Term-to-Maturity
  • Term Structure of Interest Rates
  • Yield Curve
  • Forward Rate
  • Spot Rate
  • Implied Forward Rate
  • Market-Segmentation Theory
  • Preferred-Habitat Theory
  • Yield Spread (YS)
  • Default
  • Default Risk
  • Default Risk Premium
  • Bond Ratings
  • Investment-Grade Bonds
  • Speculative Grade Bonds
  • Junk Bonds
  • Municipal Securities
  • Marketability
  • Call Option (Call Provision)
  • Put Option
  • Call Price
  • Put Interest Discount
  • Conversion Yield Discount

Chapter 6: The Term Structure of Interest Rates

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Expectation Theory

Shape of the yield curve is determined by the investors expectations of future interest rate movements and that changes in these expectations change the shape of the yield curve

By: Kyle Loy

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