+1-415-670-9189
info@expertsmind.com
Theory of the term structure of interest rates
Course:- Corporate Finance
Reference No.:- EM13881425





Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Corporate Finance

Why long-term financing is usually more expensive than short-term financing based on the theory of the term structure of interest rates?

Requirement:

-Please use Essay Format.

-Please no less than 1000 words (excluding the title page, bibliography and appendices).

-Please use a minimum of 5 additional. references

Answered:-

Verified Expert


Preview Container content

Term structure can be defined as the exact relationship related to the rate of returns expected of bond and the maturity of that bond (with similar risk) . When expressed in terms of a diagram it is known as the yield curve. In the long term interest rates tend to be higher than that of short term and these effect is often magnified by the investor expectations. It’s often documented that with a lower interest rate prevailing in the market the bond value tends to be lower and vice versa. This means the bond investor is better off with a lower interest rate as the market value of the bond goes up and vice versa. Yield curve assumptions are based on the fact that all the intermediate cash flows accruing from the bonds are invested at a rate which equals to the YTM of that Bond




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Corporate Finance) Materials
Explain what banks show as liabilities and assets on their balance sheets. How do these liabilities and assets differ from the position they hold on their customers' balance
BUACC5932 CORPORATE ACCOUNTING - Prepare the journal entries in the books of Federation Ltd to record the acquisition of Nigeria Pty Ltd and a statement of financial position
Baker Plumbing Fixtures is creating a pre-plumbed acrylic shower unit. The team creating the product includes representatives from engineering, marketing, & cost accounting.
Projecting gross profit -  the effects of volume versus price and Suppose you are analyzing a firm that is successfully executing strategy that differentiates its products f
Open the Profile section on the left menu panel and you will see "Industry" is identified. Find a competitive company within that industry and compare those ratios to the on
How to factor the new expenses with our current budget. Rachel interjects "I have $32,000 in my RRSP's and Ross has $40,000 in his. I was hoping we could build on these for
Calculate the price of this bond if the YTM is 7.50 percent, 9 percent and 4 percent. Calculate the bond yield in the following scenario: Two years ago, Walte
Examine and explain the relationship between the systematic risk coefficient on the company's operations ('asset beta'), the systematic risk to its shareholders ('equity bet