CFA Latest CFA Level 1 Discussions Question of the Week – Fixed Income

Question of the Week – Fixed Income

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    • AdaptPrep
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      How are upward-sloping yield
      curves explained by the Pure Expectations Theory?

      • There are separate markets for long-term and short-term securities, and the
        long-term market demands greater returns.
      • Future interest rates are expected to rise.
      • Investors in long-term securities demand a risk premium for tying their
        money up longer.
    • AdaptPrep
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      The three major term
      structure theories are summarized below from the perspective of an
      upward-sloping yield curve:

      Pure Expectations Theory – Future
      interest rates are expected to rise.

      Liquidity Preference Theory – Investors in long-term
      securities demand a risk premium for tying their money up longer.

      Market Segmentation Theory – There are separate markets
      for long-term and short-term securities, and the long-term market demands
      greater returns.

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