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

Q: Explain the differences between yield-to-maturity and yield-to-call

A: While both yield to maturity and yield to call are related to bonds they are not the same thing.

Q: What is Internal Rate of Return - Variable Cash Flows with Reversion?  Please provide examples.

A: The internal rate of return is the one of the discounted techniques of capital budgeting which is…

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: How can we find Yield to maturity?

A: Yield to maturity (YTM) is the foreseen absolute profit for a bond if the bond holds until due or…

Q: Define an inverted yield curve. What does it indicate?

A: A yield curve is a graph that shows the yields of bonds with different maturities. Normally, a yield…

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: Discuss the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Model (APM) of Roll and…

A: Two pricing models namely CAPM and APM have to be discussed and differentiated.

Q: The Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the…

A: Based on CAPM, Expected return on security = Risk free rate + Beta * Market risk premium

Q: Explain the sequential payout tranche structure?

A: Sequential payout tranche structure In this type of structure interest payments are received by…

Q: This is a generalized framework for analyzing the relationship between risk and return: a. capital…

A: Risk refers to the uncertainty related to the investment within the future. Risk arises within the…

Q: Describe the capital asset pricing model and explain the role of beta as a risk measurement tool.

A: Answer

Q: Under which of the following term structure theories is market supply and demand the main cause of…

A: B. Segmented markets

Q: Breifly explain what "playing the yield curve" means.

A: The yield on a bond refers to the annual return that one gets as a bond matures. A yield curve is a…

Q: How duration and convexity can help investors better manage their fixed-income portfolios. Give…

A: Convexity is referred to as the risk management tool, which helps in measuring as well as managing…

Q: What is the reason for investors to track moves in the yield curve? Please discuss in more depth and…

A: A yield curve is a graphical representation of the different interest rates that the bonds yield but…

Q: Discuss the assumptions underlying the Gordon growth model.

A: Gorden Model recognizes that the current market price of the share reflects expected dividends . In…

Q: Fully discuss the Arbitrage Pricing Model. Show formula and give examples.

A: There are multiple methods that estimate the stock's required return. The capital asset pricing…

Q: . Leo invested $67 250 into an annuity earning 4.4% compounded semi-annually. How much is he able to…

A: A series of fixed payments that are paid or received at an equal time interval is term as the…

Q: There are three explanations for the shape of the yield curve i.e. Unbiased expectations theory,…

A: The term structure of interest rates is a function of the terms of the bonds and the variation in…

Q: What is a yield curve? What does it mean when the yield curve is inverted?

A: Yield curve tells the relationship between the short term interest rates and long term interest…

Q: Why is the free cash flow valuation model so widely used?

A: With the free cash flow of the firm, administrators will focus on potential businesses that increase…

Q: What is definitions of this?   Systematic risk  Risk free rate of return  Market rate of…

A: Capital asset pricing model (CAPM) can be used to compute the return expected by the investors by…

Q: Explain Price Return Swap?

A: A derivative contract which enables two parties to exchange financial instruments, cash flows,…

Q: Make a contrast between yield to maturity (YTM) and yield to redemption (YTC).

A: Contrast between Yield to maturity (YTM) and yield to redemption (YTC):

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: Asset pricing Models provide a logical basis for computing the risk premiums and determining the…

A: Capital Asset Pricing Model (CAPM) is tool used to calculate the systemic risk of a asset. CAPM…

Q: )

A: ISLM MODEL- What Is the IS-LM Model? The IS-LM model, which stands for…

Q: Can someone give an example or scenario about the following:  1. Capital Asset Pricing Model2.…

A: 1.

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.