Question
Steven is a fixed-income portfolio manager who works with large institutional clients. As an intern working under Steven, you are required to assist him with
Steven is a fixed-income portfolio manager who works with large institutional clients. As an intern working under Steven, you are required to assist him with analysing the yield curve. You have obtained the following information regarding the current treasury yield curve: Maturity (Years) Yield to Maturity (YTM) 1 5.50% 2 6.60% 3 7.70% 4 8.80% Required: 2.1. Identify the four common shapes of the yield curve and provide a short discussion of the relationship between the YTM and maturity suggested by each curve. (8 marks) 2.2. Determine the forward rates in one years time for the one- and two-year maturing bonds. (6 marks) 2.3. Identify the shape of the yield curve based on your findings in 2.2. above.
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