Lesson 7 Chapter 7 Flashcards
What is Yield-to-Maturity?
The measure of a bond’s total return.
What is a Yield curve?
Displays the relationship between Government of Canada bond yields at different maturities.
What is an inverted yield curve?
Often presages a recession
What is Normal Yield Curve
Longer Term Bond yields are higher than shorter term yields.
What is Liquidity preference theory?
Posits that investors demand higher yields on longer term bonds to compensate them for maturity risk.
What is Duration?
Measures the sensitivity of a bond’s price to changes in interest rate.
What is coupon yield?
Determines the periodic bond interest payment as a percentage of face value
What is reinvestment risk?
The possibility that cashflows from a security will earn lower rates of interest than the original security
What is Expectation theory?
Posits that investors should earn the same rate of return from a 10-year bond as they form two five-year bond purchased consecutively.
What are Real Yields?
Rates of return exclusive of inflation
What is present value?
