ve looks like the one show below, predictin about the movement of future short-term interest rates? What might the yield curve indicate about the market's predictions for the inflation rate in the future? Yield to Maturity Term to Maturity

ve looks like the one show below, predictin about the movement of future short-term interest rates? What might the yield curve indicate about the market's predictions for the inflation rate in the future? Yield to Maturity Term to Maturity

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 13PAE

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The remarkable thing about the events described in the article is that the yield an the 3-month T-bill was briefly negative. To see how this could haroen, consider the relationship between bond prices and bond yields. A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entities the holder to $1,000 in three months. For example, if you were to buy a 3-month T-bill on September 24, 2008, with a maturity value of $1,000 and 90 days left to maturity, the U.S. government would pay you $1.000 on December 23, 2008. In general, the price of a bond is less than its maturity value. That is, if you are going to give up a certain amount of money for the duration of the bond, you expect to be paid for this loss of liquidity and compensated for inflation that could reduce the value of the repayment at the end of the period. Therefore, a piece of paper entitling you to $1,000 on December 23 would usually be worth less than $1,000 on September 24. The yield on a bond is a…
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If the yield curve suddenly became steeper, how wouldyou revise your predictions of interest rates in the future?