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Yield Curve Analysis: Choosing the optimal maturity date of investments and financing

Authors
Publication Date
Keywords
  • E43 - Interest Rates: Determination
  • Term Structure
  • And Effects
  • G31 - Capital Budgeting
  • Fixed Investment And Inventory Studies
  • Capacity
  • G3 - Corporate Finance And Governance
  • G32 - Financing Policy
  • Financial Risk And Risk Management
  • Capital And Ownership Structure
  • Value Of Firms
  • Goodwill
Disciplines
  • Economics

Abstract

The shape of the yield curve determines the relationship between interest rate risk and return of investments. The analysis of the yield curve can help the investor or financier decide whether to take a short- or long term bond or loan. The management decision of choosing an optimal maturity depends on three form-giving factors of the yield curve: the general level of interest rates, the slope and the curvature of the curve. By using implicit forward rates the decision situation of investors and financiers is modeled and general decision rules for financial managers are derived.

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