tailieunhanh - Financial Markets and Institutions: Chapter 3

Chapter 3 Structure of Interest Rates: describe how characteristics of debt securities cause their yields to vary, demonstrate how to estimate the appropriate yield for any particular debt security, explain the theories behind the term structure of interest rates. | 1 1 ■ describe how characteristics of debt securities cause their yields to vary ■ demonstrate how to estimate the appropriate yield for any particular debt security ■ explain the theories behind the term structure of interest rates (relationship between the term to maturity and the yield of securities) 2 Chapter Objectives 3 Structure of Interest Rates 2 Why Debt Security Yields Vary The yields on debt securities are affected: Credit (default) risk Liquidity Tax status Term to maturity 3 3 Why Debt Security Yields Vary Credit (Default) Risk – securities with a higher degree of default risk offer higher yields. Rating Agencies - Rating agencies charge the issuers of debt securities a fee for assessing default risk. (Exhibit ). Accuracy of Credit Ratings - The ratings issued by the agencies are useful indicators of default risk but they are opinions, not guarantees. Oversight of Credit Rating Agencies - The Financial Reform Act of 2010 established an Office of Credit Ratings within the Securities and Exchange Commission in order to regulate credit rating agencies. Rating agencies must establish internal controls. 4 4 Exhibit Rating Classification by Rating Agencies 5 5 Why Debt Securities Yields Vary Liquidity - The lower a security’s liquidity, the higher the yield preferred by an investor. Tax Status (Exhibit ) Investors are more concerned with after-tax income. Taxable securities must offer a higher before-tax yield. Term to Maturity (Exhibit ) Maturity dates will differ between debt securities. The term structure of interest rates defines the relationship between term to maturity and the annualized yield. 6 6 Why Debt Securities Yields Vary Computing the Equivalent Before-Tax Yield: = after-tax yield = before-tax yield = Investor’s marginal tax rate Computing the Equivalent Before-Tax Yield: 7 7 Exhibit After-Tax Yields Based on Various Tax Rates and Before-Tax Yields 8 8 Exhibit Example of Relationship between Maturity and Yield of Treasury | 1 1 ■ describe how characteristics of debt securities cause their yields to vary ■ demonstrate how to estimate the appropriate yield for any particular debt security ■ explain the theories behind the term structure of interest rates (relationship between the term to maturity and the yield of securities) 2 Chapter Objectives 3 Structure of Interest Rates 2 Why Debt Security Yields Vary The yields on debt securities are affected: Credit (default) risk Liquidity Tax status Term to maturity 3 3 Why Debt Security Yields Vary Credit (Default) Risk – securities with a higher degree of default risk offer higher yields. Rating Agencies - Rating agencies charge the issuers of debt securities a fee for assessing default risk. (Exhibit ). Accuracy of Credit Ratings - The ratings issued by the agencies are useful indicators of default risk but they are opinions, not guarantees. Oversight of Credit Rating Agencies - The Financial Reform Act of 2010 established an Office of Credit Ratings within

• Ngân hàng - Tín dụng
• Structure of Interest Rates
• Chính sách tiền tệ
• Lý thuyết tài chính tiền tệ
• Thị trường tài chính
• Financial Markets and Institutions
• Tổ chức tài chính
• Interest Rates
• The behavior of interest rates
• The risk of interest rates
• Term structure of interest rates
• Term structure
• Determinants of asset demand
• Financial markets
• Lecture Financial markets
• Debt securities
• Appropriate yield
• Financial institutions markets
• The federal reserve
• Interest rate risk
• The structure of interest rates
• Investment environment
• Lecture Investments
• Active portfolio management
• Capital markets
• Determination of interest rates
• Functions of the fed
• Monetary policy
• Money markets
• Mortgage markets
• Risk structure of interest rates
• Financial institutions
• Financial Instruments
• Financial system
• Interest rate determination
• The financial system
• Interest rates change
• Financial markets efficient
• Term structure affect interest rates
• The economics of money
• Bài giảng Tiền tệ ngân hàng
• Term structure of interest rates
• Rational Expectations
• Financial Structure
• Financial News
• Expectations Theory
• MARKET HYPOTHESIS
• Allergen Bioinformatics
• Recent Trends
• Developments
• Family Based Studies
• Complex Disorders
• Bioinformatics Software
• Money banking
• The UK financial system
• The US financial system
• Italian financial systems
• Portfolio theory
• Lecture Money and capital markets
• Global marketplace