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12 Cards in this Set
- Front
- Back
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default
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A situation in which the party issuing a debt instrument is unable to make interest payments or pay off the amount owed when the instrument matures
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default-free bonds
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Bonds with no default risk, such as U.S. government bonds
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expectations theory
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The proposition that the interest rate on a long-term bond will equal the average of the short-term interest rates that people expect to occur over the life of the long-term bond
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inverted yield curve
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A yield curve that is downward sloping
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junk bonds
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Bonds with ratings below Baa (or BBB) that have a high default risk
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liquidity premium theory
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The theory that the interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond plus a positive term (liquidity) premium
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preferred habitat theory
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A theory that is closely related to
liquidity premium theory, in which the interest rate on a long-term bond equals an average of short-term interest rates expected to occur over the life of the long-term bond plus a positive term premium |
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risk premium
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The spread between the interest rate on bonds with default risk and the interest rate on default-free bonds
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risk structure of interest rates
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The relationship among the various interest rates on bonds with the same term to maturity
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segmented markets theory
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A theory of term structure that sees markets for different-maturity bonds as completely separated and segmented such that the interest rate for bonds of a given maturity is determined solely by supply of and demand for bonds of that maturity
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term structure of interest rates
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The relationship among interest rates on bonds with different terms to maturity
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yield curve
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A plot of the interest rates for particular types of bonds with different terms to maturity
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