Chapter 10: Organizational Communication Learning Objectives
Chapter 7: Learning Objectives
description
Transcript of Chapter 7: Learning Objectives
![Page 1: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/1.jpg)
Chapter 7:Learning Objectives
Term Structure of Interest Rates
![Page 2: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/2.jpg)
Chapter 7:Learning Objectives
Term Structure of Interest Rates expectations & other hypotheses
![Page 3: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/3.jpg)
Chapter 7:Learning Objectives
Term Structure of Interest Rates expectations & other hypotheses real interest rate considerations
![Page 4: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/4.jpg)
Chapter 7:Learning Objectives
Term Structure of Interest Rates expectations & other hypotheses real interest rate considerations Anomalies in the yield curve
![Page 5: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/5.jpg)
Long-term and short-term Government of Canada Bond Yields
0
4
8
12
16
20
24
60 65 70 75 80 85 90 95 00
Long-term yield
Short-term yield
Per
cent
per
yea
r
Year
![Page 6: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/6.jpg)
The Term Structure of Interest Rates: The Expectations Hypothesis
Why hold short-term vs. Long-term bonds? Should their yields be linked to each other?
R1 R2
E11
![Page 7: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/7.jpg)
The Key Relations in the Expectations Hypothesis
The Simplest case: R2 = (R1 + E11)/2
The General case: Rn = (R1 + E11 + E2
1 + … + En-11)/n
![Page 8: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/8.jpg)
The Expectations Hypothesis: Two Examples
R2 5=(4+6)/2
R1 4 14
E11 6 13
E12 12.5
E13 12
E14 11.5
R5 12.6=(14+13+12.5+12+11.5)/5
![Page 9: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/9.jpg)
Hypothetical Yield Curves
Term
Yield
Rising
Constant
Falling
![Page 10: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/10.jpg)
Financial Focus 7.1
Hypothetical YC are an estimate of the relationship between yield and term to maturity
Term
Yield
![Page 11: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/11.jpg)
Financial Focus 7.1
Hypothetical YC are an estimate of the relationship between yield and term to maturity
Yield curves must be constructed for similar types of financial instruments
Term
Yield
![Page 12: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/12.jpg)
Financial Focus 7.1
Hypothetical YC are an estimate of the relationship between yield and term to maturity
Yield curves must be constructed for similar types of financial instruments
One must not read too much into the shape/slope of a yield curve
Term
Yield
![Page 13: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/13.jpg)
Yield Curve Puzzles
The Yield curve is generally upward sloping
![Page 14: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/14.jpg)
Yield Curve Puzzles
The Yield curve is generally upward sloping Table 7.3 shows that the term premium is
generally positive
![Page 15: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/15.jpg)
Table 7.3: Yield differential relative to 90-day treasury bills
(1)Decades
(2)1 to 3 Years
(3)3 to 5 Years
(4)5 to 10 Years
(5)10 Year and Longer
(6)% of Quarters Spread is
Positive1960’s 0.513 0.877 1.090 1.255 92.51970’s 0.442 0.766 1.046 1.531 90.01980’s 0.044 0.096 0.184 0.455 65.01990’s 0.544 0.876 1.212 1.606 87.0
![Page 16: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/16.jpg)
Yield Curve Puzzles
The Yield curve is generally upward sloping Table 7.3 shows that the term premium is
generally positive The yield curve tends to shift over time
![Page 17: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/17.jpg)
Yield Curve Puzzles
The Yield curve is generally upward sloping Table 7.3 shows that the term premium is
generally positive The yield curve tends to shift over time
Figure 7.3 shows that inflation tends to shift the entire yield curve
![Page 18: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/18.jpg)
Shifting Yield Curves
![Page 19: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/19.jpg)
Yield Curve Puzzles
The Yield curve is generally upward sloping Table 7.3 shows that the term premium is generally
positive The yield curve tends to shift over time
Figure 7.3 shows that inflation tends to shift the entire yield curve
The slope of the yield curve tends to predict future economic activity
![Page 20: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/20.jpg)
Yield Curves and Monetary Policy
![Page 21: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/21.jpg)
Figure 7.4: Shifting yield curves
![Page 22: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/22.jpg)
Figure 7.5: The yield spread and recessions in Canada
-4
-3
-2
-1
0
1
2
3
4
5
1960 1965 1970 1975 1980 1985 1990 1995 2000
Yie
ld S
pre
ad
Year
![Page 23: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/23.jpg)
POINT-COUNTERPOINT 7.1: The Information Content in Yield Curves
POINT: COUNTERPOINT:
![Page 24: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/24.jpg)
POINT-COUNTERPOINT 7.1: The Information Content in Yield Curves
POINT: The YC is easy to
understand
COUNTERPOINT:
![Page 25: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/25.jpg)
POINT-COUNTERPOINT 7.1: The Information Content in Yield Curves
POINT: The YC is easy to
understand At maturities of <= 3
yrs inflation forecasting performance is good
COUNTERPOINT:
![Page 26: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/26.jpg)
POINT-COUNTERPOINT 7.1: The Information Content in Yield Curves
POINT: The YC is easy to
understand At maturities of <= 3
yrs inflation forecasting performance is good
Useful pedagogical device to understanding central bank policies
COUNTERPOINT:
![Page 27: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/27.jpg)
POINT-COUNTERPOINT 7.1: The Information Content in Yield Curves
POINT: The YC is easy to
understand At maturities of <= 3
yrs inflation forecasting performance is good
Useful pedagogical device to understanding central bank policies
Helps to understand debt management
COUNTERPOINT:
![Page 28: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/28.jpg)
POINT-COUNTERPOINT 7.1: The Information Content in Yield Curves
POINT: The YC is easy to
understand At maturities of <= 3
yrs inflation forecasting performance is good
Useful pedagogical device to understanding central bank policies
Helps to understand debt management
COUNTERPOINT: LT and ST bonds are
not good substitutes
![Page 29: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/29.jpg)
POINT-COUNTERPOINT 7.1: The Information Content in Yield Curves
POINT: The YC is easy to
understand At maturities of <= 3
yrs inflation forecasting performance is good
Useful pedagogical device to understanding central bank policies
Helps to understand debt management
COUNTERPOINT: LT and ST bonds are
not good substitutes Transactions costs
can be significant
![Page 30: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/30.jpg)
POINT-COUNTERPOINT 7.1: The Information Content in Yield Curves
POINT: The YC is easy to
understand At maturities of <= 3
yrs inflation forecasting performance is good
Useful pedagogical device to understanding central bank policies
Helps to understand debt management
COUNTERPOINT: LT and ST bonds are
not good substitutes Transactions costs
can be significant Empirical evidence for
EH weakest for US
![Page 31: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/31.jpg)
POINT-COUNTERPOINT 7.1: The Information Content in Yield Curves
POINT: The YC is easy to
understand At maturities of <= 3
yrs inflation forecasting performance is good
Useful pedagogical device to understanding central bank policies
Helps to understand debt management
COUNTERPOINT: LT and ST bonds are
not good substitutes Transactions costs
can be significant Empirical evidence for
EH weakest for US Ignores many other
factors that determine yields over time
![Page 32: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/32.jpg)
Competing Explanations of the Term Structure
The Liquidity Premium theory: Holding longer term bonds in inherently riskier because the market is thinner
![Page 33: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/33.jpg)
LIQUIDITY PREMIUM
![Page 34: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/34.jpg)
Competing Explanations of the Term Structure
The Liquidity Premium theory: Holding longer term bonds in inherently riskier because the market is thinner
The Market Segmentation theory: Short-term and long-term markets are separate
![Page 35: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/35.jpg)
MARKET SEGMENTATION
![Page 36: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/36.jpg)
Competing Explanations of the Term Structure
The Liquidity Premium theory: Holding longer term bonds in inherently riskier because the market is thinner
The Market Segmentation theory: Short-term and long-term markets are separate
The Preferred-Habitat theory: there is limited substitutability between short-term and long-term bonds
![Page 37: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/37.jpg)
Figure 7.7: Interest rates and the maturity structure of government of Canada debt
3
4
5
6
7
8
0
4
8
12
16
20
1980 1985 1990 1995 2000
Ave
rage
mat
urity
Year
Treasury bill
Long term bonds
Averagematurityof debt
Percent per year
![Page 38: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/38.jpg)
Summary
The term structure of interest rates explains why interest rates differ when their term to maturity differs
![Page 39: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/39.jpg)
Summary
The term structure of interest rates explains why interest rates differ when their term to maturity differs
The expectations hypothesis predicts that long term rates are averages of expected short-term rates
![Page 40: Chapter 7: Learning Objectives](https://reader036.fdocuments.in/reader036/viewer/2022062323/56815a88550346895dc7fc64/html5/thumbnails/40.jpg)
Summary
The term structure of interest rates explains why interest rates differ when their term to maturity differs
The expectations hypothesis predicts that long term rates are averages of expected short-term rates
Despite the appeal of the expectations hypothesis there are “puzzles” in the behaviour of the yield curve