文档介绍：Finance Concepts II:
Term Structure of Interest Rates
Federal Reserve Bank of New York
Central Banking Seminar
Preparatory Workshop in Financial Markets,
Instruments and Institutions
Arturo Estrella
October 18, 2005
Overview
•Principal and Interest (Quick Review)
•Term Structure: Zero Coupon Bonds
•Expectations Hypothesis
•Term Structure: Coupon Bonds
•Influences on the Yield Curve
•Predictive Power of the Yield Curve
Principal and Interest
•-$100 now
•+$105 in one year (= $100 principal + $5
interest/coupon)
•Rate of return or yield is 5% = 105/100 - 1
•Discount factor is 100/105 = .9524
., present value of $1 in one year is $.9524
Principal and Interest II
•-$99 now
•+$105 in one year (= $100 principal + $5
interest/coupon)
•Rate of return or yield is % = 105/99 - 1
•Discount factor is 99/105 = .9429
The Term Structure: Zero Coupon Bonds
•One-year bond
-100 now, +104 in one year
Yield is 4% = 104/100 - 1
•Two-year bond
-100 now, +110 in two years
Yield (annual) is % = (110/100)(1/2) - 1
(Note exponent!)
Zero Coupon Yield Curve
(A very simple one)
% %
% %
%
d
l
e %
i
Y %
%
%
1 2
Maturity (Years)
Expectations Hypothesis
•The yield on a two-year bond is the same as the expected
yield on two consecutive one-year bonds.
•So, -100 now, +110 in two years
is the same as
-100 now, +104 in one year
plus
-104 in one year, 110 in two years
Expectations Hypothesis II
•Yield on the second one-year bond is calculated as
110/104 - 1 = %
•This yield is known as a “forward rate”
•The pure expectations hypothesis says that the
expected yield on a one-year bond, one year from
now, is %
Coupon Bonds
Cash flow in:
Price Year 1 Year 2 Year 3
Bond 1 -100 106
(Par)
Bond 2 -92 2 102
(Discount)
Bond 3 -106 9 9 109
(Premium)
Yield to Maturity: Coupon Bonds
•Same as internal rate of return
•Bond by bond:
100 = (1+y1)-1 * 106