Money

1
Money Banking

• Week 4
• Interest Rates cont.

2
Chapter Six

• Interest Rates
• Risk Structure
• Term Structure

3
Risk Structure of Interest Rates

• Bonds of same maturity will have different yields
  because of three factors
• Default risk
• Liquidity
• Tax considerations

4
Risk Structure of Long-Term Bonds in the United
States
5
Rating Bonds
6
Bond Ratings
7
History of Junk Bonds

• Fallen Angels
• Michael Milken

8
Yield Curves
9
Yield Curve Yesterday
10
Theories of Term Structure (shape of yield curve)

• Expectations hypothesis
• Segmented Markets
• Liquidity Premium (preferred habitat)

11
Interest Rates on Different Maturity Bonds Move
Together
12
Relationship Between the Liquidity Premium
(Preferred Habitat) and Expectations Theories