5.6 Yield Curves
Interest rates vary based on the maturity date of a bond or loan. Typically, the longer a borrower wants for repayment of a loan and the longer the lender will wait for repayment, the higher the interest rate. When we plot this concept on a graph with time to maturity on the x-axis and interest rate on the y-axis, we imply a yield curve. The relationship of the interest rate to the maturity date of a particular financial instrument is the yield curve of that financial instrument. We use the yield curve as a benchmark for debt in the market, such as mortgage rates or bank lending rates. Economists also use the curve to predict changes in economic output and growth.
The yield curve can take on various shapes over time. The most ...
Get Financial Management: Core Concepts, Third Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
