金融市场学Topic Three.pptVIP

Topic Three Structure of Interest Rates Yields offered by debt securities at a given point in time have a particular structure. Some types of debt securities always offer a higher yield than others. Individual and institutional investors must understand why quoted yield vary so that they can determine whether the extra yield on a given security outweigh any unfavorable characteristics. Financial managers of corporations or government agencies in need of funds must understand why quoted yields of debt securities vary so that they can estimates the yield they would have to offer in order to sell new debt securities. The specific objectives of this topic are to: Describe how characteristics of debt securities cause their yields to vary; Demonstrate how to estimate the appropriate yield for any particular debt securities; Explain the theories behind the term structure of interest rates (relationship between the term of maturity and yield of securities). Characteristics of Debt Securities That Cause Their Yields to Vary In general, securities with unfavorable characteristics will offer higher yields to entice investors. The characteristics that affect the yields on debt securities are: Credit (default) risk; Liquidity; Tax status; Term to maturity; Special provisions Credit (Default) Risk The risk that security issuer may be default. If all other characteristics besides credit (default) risk are equal, securities with a higher degree of risk would have to offer higher yields to be chosen. Credit risk is especially relevant for longer-term securities that expose creditors to the possibility of default for a longer time. Tax Status: Before-tax income, after-tax income, tax-exempt. where, after-tax income, before-tax income, Investor’s marginal tax rate. Investors retain only a percentage (1-T) of the before-tax yield once taxes are paid. Liquidity: Securities are liquid if they could be easily conv