Term
|
Definition
- the ease of conversion to cash without loss of value
- the lower a securities liquidity, the higher the yield preferred by investor |
|
|
Term
|
Definition
- investors are more concerned with after-tax income
- taxable securities must offer a higher before-tax yield |
|
|
Term
|
Definition
- maturity dates will differ between debt securities
- the term strucutre of interest rates defines the relationship between term to maturity and the annualized yield |
|
|
Term
| explaining actual yield differentials |
|
Definition
| - small differentials can be significant |
|
|
Term
| yield differentials of money market securities |
|
Definition
| - securities: commercial paper, certificates of deposit, bankers acceptance |
|
|
Term
| yield differentials of capital market securities |
|
Definition
- municipal (munis) bonds have lowest before-tax yield
- treasury bonds may have higher before-tax yield than munis but have lowest after-tax yield
- corporate bonds may have highest yields |
|
|
Term
|
Definition
| - term structure is determined solely by the expectations of future rates |
|
|
Term
| impact of an expected increase in interest rates |
|
Definition
| - leads to an upward sloping yield curve |
|
|
Term
| impact of an expected decline in interest rates |
|
Definition
| - leads to a downward sloping yield curve |
|
|
Term
|
Definition
| - investors prefer short-term liquid securities but will be willing to invest in long-term securities if compensated with a premium for lower liquidity |
|
|
Term
|
Definition
| - investors choose securities with maturities that satisfy their forecasting cash needs |
|
|
