Question-21: What is yield-curve represent?
Answer: Yield-curve, represent the relationship among interest rates or yield on the bonds over different maturities.
Question-22: How does central bank’s monopoly affects the interest rates?
Answer: The central bank or Fed’s monopoly over liquidity creation helps in setting up overnight rates. But not the rates for longer maturities. As longer maturities rates influenced by the aggregated demand.
Question-23: Which all factor contributes the long term maturity interest rates?
Answer: This is mainly driven by the following things
- Business cycle
- Inflation
- Savings rates
- Government deficits
Above are not in the hands of Fed or Central Bank.
Question-24: What is the Yield in Fixed Income Security means?
Answer: Actual return received by holding the Bond it could be more or less than the coupon. Depend on the price of the bond and many other factors.
Question-25: What do you mean by a price of the bond?
Answer: Price of a bond represent the present value of expected cash flow. To calculate the price of the bond a comparable security’s yield is used which is available in the market and with that also interest rate or discount rate would be used.
