FIN722 GDB No. 1 Solution and Discussion Spring 2017 Due Date: May 02, 2017
FIN722 - Corporate Finance GDB No. 1 Solution and Discussion Spring 2017 Due Date: May 02, 2017
Graded Discussion Board
Corporate Finance (FIN722)
This is to inform that Graded Discussion Board (GDB) No. 01 will be opened on April 25, 2017 for discussion and last date for posting your discussion will be May 02, 2017.
Term Structure of Interest Rates
By attempting this GDB, students will be able to differentiate between term structure of interest rates and the yield curve.
Graded Discussion Question:
Term structure of interest rate generally illustrates the relationship between short term and long term interest rates. More specifically, it tells us the relationship of nominal interest rate on a default free, pure discount bond with its time to maturity. Three factors that determine the shape of term structure are real rate of interest, inflation rate and interest rate risk.
Yield curve and term structure of interest rates are considered almost same things. However, both are different in the sense that yield curve is based upon Coupon Bond yields while term structure is based upon Pure Discount Bonds with no coupon payments. Due to this, shape of yield curve is dependent upon three additional factors other than those which construct term structure of interest rate.
Required: What are these three factors and why are these considered important to determine yield curve, however, irrelevant to term structure? Justify your answer by providing appropriate reasoning.
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Dear what is the irrelevant to term structure?
liqudity premium is part of this DDB ?
Please share idea solution time is less
1. Premium risk .
2. Liqadity Premium
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