FIN30021 Fixed Income and Debts Markets Week - 6 Term Structure of Interest Rates Question 1 What are the four components of interest rates? Question 2 What are the 5 historical findings for yield curves? Question 3 What is the difference between preferred habitat and market segmentation theory in relation to term structure? Question 4 How are expectation theory and liquidity premium theory related? Question 5 Assuming that the pure expectation theory holds, use the following yields: Time Yield p.a. % (annually) 1 6.20% 2 6.25% 3 6.28% 4 7.10% 5 7.15% 6 6.85% to calculate: (i) f1,2 ( ie the 1 year rate in 1 years time,) (ii) f1,3 ( ie the 2 year rate in 1 years time,) (iii) f2,4 ( ie the 2 year rate in 2 years time,) (iv) f3,6 ( ie the 3 year rate in 3 years time,) (v) f5,6 ( ie the 1 year rate in 5 years time,) FIN30021 MODULE 6 1