Preview 120
Risk Structure of Interest Rates 120
Default Risk 120
Application The Enron Bankruptcy and the Baa-Aaa Spread 124
Liquidity 125
Income Tax Considerations 125
Summary 127
Application Effects of the Bush Tax Cut on Bond Interest Rates 127
Term Structure of Interest Rates 127
Following the Financial News Yield Curves 128
Expectations Theory 129
Segmented Markets Theory 132
Liquidity Premium and Preferred Habitat Theories 133
Evidence on the Term Structure 136
Summary 137
Application Interpreting Yield Curves, 1980-2003 137
Summary, Key Terms, Questions and Problems, and Web Exercises 138
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