Why does the zero-coupon yield curvebe below the US treasury yield curve?And explain the differences between thetwo yield curves.

The yield curve describes the position of yields on treasury bonds of different durations. It shows…

Answered: zero-coupon yield curve

Business

Finance

zero-coupon yield curve

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 16MC

See similar textbooks

Related questions

Q: Describe what the zero-coupon yield curve measures. Quickly sketch what you expect the likely shape…

A: A zero-coupon yield curve describes a zero-coupon yield bond which pays no coupon. Yield from zero…

Q: Asset Y has a beta of 1.2. The risk-free rate of return is 6 percent, while the return on the market…

A: In this question we need to compute the asset's market risk premium. We can solve this question…

Q: The yield curve usually has a positive slope. Why?

A: Yield Curve- is plotted on a graph on which yield of a bond or securities are plotted on the Y-axis…

Q: MCQ: Yield on bond is 7% and market required return is 14% then market risk premium is 1. 2% 2. 21%…

A: In this question we need to compute market risk premium. This question can be solved with the help…

Q: Penguin International's stock has an expected return of 13.3 %, a beta of 1.25. If the risk-free…

A: The question can be answered by determining the market risk premium using the capital asset pricing…

Q: Big Canyon Enterprises has bonds on the market making annual payments, with 15 ye to maturity, a par…

A: Coupon rate is defined as the rate of the interest which paid to the bond holders through the bond…

Q: Calculate the current yield and yield to maturity on a 12.3%, 15-year bond that is quoted at 94.375.

A: Given details are : Current value of bond = 94.375 Time period = 15 years Par value = 100 Coupon…

Q: You are considering a bond whose market price is less than its par value. Which one of the following…

A: Market Value is the current price at which a bond can be bought or sold in the secondary market. It…

Q: Which of the following will increase if the coupon rate increases? I. face value II. market value…

A: Coupon rate is on bonds is the interest rate paid by bond issuers on the bond's face value. It is…

Q: Explain the Weighted Average Coupon?

A: Weighted average coupon (WAC): It is a proportion of the rate of return for a pool of home loans…

Q: beta value on risk-return ratio

A: The risk-return ratio measures the return in terms of risk for a specified period of time. The…

Q: A particular stock has a beta of 1.2 and an expected return of 10.2 %. The expected risk premium on…

A: The expected return on market portfolio stock refers to the return that is anticipated on a market…

Q: What is the relationship between the price, coupon rate and market yield?

A: The coupon rate is the bond's interest rate. The coupon rate is not the same as the market interest…

Q: What is the Capital Asset Pricing Model (CAPM)? Derive the risk premium when beta is between 0 and…

A: Stock valuation is a quantitative approach that an analyst or management of the company undergoes…

Q: A. Realized return B. Ex ante alpha C. Ex post alpha D. Realized beta Question 7 (MCQ) One example…

A: The question is multiple choice question. Required Choose the Correct Option.

Q: Explain a flat yield curve using the segmented market theory.

A: Mаrket segmentаtiоn theоry is а theоry thаt lоng аnd shоrt-term interest rаtes аre nоt…

Q: What is the difference between the WAC and the pass-through coupon rate?

A: The weighted average coupon (WAC) is a calculation of earnings rates on the mortgage-backed security…

Q: According to the CAPM, what is the market risk premium given an expected return on a security of…

A: Market risk premium = ( Expected return - risk free rate ) / beta

Q: An inverted or downward sloping yield curve indicates that: Group of answer choices C. Short-term…

A: The yield curve is a graphical representation of yields related to the similar nature of bonds in…

Q: ield changes even though the income from the coupo

A: Step 1 The level of a bond coupon is equal to its benefit in maturity if its purchase price is equal…

Q: Moody's Rating S&P Rating Description Cou A+ A1 The Coca-Cola Co 2..875% 03/10/2025 191317BS9 The…

A: Price of bond is present value of coupon plus present value of par value.

Q: Carla Vista Corp. management plans to issue seven-year zero coupon bonds. It has learned that these…

A: The zero coupon bonds do not pay coupon payments. These bonds are issued at discount but mature at…

Q: distinquish between current yield, coupon rate and yield to maturity

A: current yield is the yield of the bond at present moment.

Q: A $2,000 face value coupon bond with a $120 coupon payment every year has a coupon rate of: a. 0.6%…

A: Details given are : Face value of bond = $2000 Annual coupon = $120 We need to compute the coupon…

Q: The slope of the Security Market Line equals to ____, and the slope of Capital Allocation Line…

A: The security market line is how we represent the capital asset pricing model on a graph that shows…

Q: A 10.2%, 18-year bond is quoted at 104.75. Calculate the current yield

A: In this question we need to calculate Current Yield. Current yield = Coupon amount / Current Bond…

Q: Use the ‘Liquidity Premium Theory’ to explain the shape of the yield curve.

A: Liquidity Premium Theory states that investors will require a higher rate of return(interest rate or…

Q: Explain an upward sloping yield curve using the pure expectation theory.

A: Pure expectation theory: Pure expectation theory states that expected future spot rates will be…

Q: Explain with example the Yield to Maturity?

A: A bond is a financial instrument that is issued by the government and the corporate to raise the…

Question

Why does the zero-coupon yield curve
be below the US treasury yield curve?
And explain the differences between the
two yield curves.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

For the cost of equity (stock) is it better to use the current US Treasury bill rate or a longer-termgovernment bond rate as the risk-free rate of return?
What is the relationship between the price, coupon rate and market yield?
What is the difference between the WAC and the pass-through coupon rate?
Suppose interest rates in the economy increase. How would such a change affect the costs of both debt and common equity based on the CAPM?
What is the term for the type of interest rates that constitute the yield curve? What do these interest rates represent?
Why is the U.S. Treasury yield considered the base interest rate?
Compare the coupon rate and the interest rate regarding bonds. What is a par value? Describe the impact of a tax shield on fixed income yields.
We discussed the expectations theory of the term structure of interest rates. What does it says about the factors that influence the shape (upward, downward or flat) of the yield curve. Why does the yield curve sometimes inverts (become downward sloping) even though most of the time it is upward sloping?
Which of the following instruments has the highest cost? Seleccione una: a. Fed Funds b. Commercial Paper c. Eurodollars d. Prime rate
Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? How should the capital structure weights are used to calculate the WACC be determined?
What are the main differences between the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT) model? What are each model’s underlying assumptions, strengths and weaknesses?
According to the CAPM (capital asset pricing model), and the security market line is a straight line.What does the slope of this line (Rise / Run) represent?