The Pure Yield Curve Can Be Estimated

question 12

Multiple Choice

The pure yield curve can be estimated

• A) by using zero-coupon Treasuries.
• B) by using stripped Treasuries if each coupon is treated as a separate "zero."
• C) by using corporate bonds with different risk ratings.
• D) by estimating liquidity premiums for different maturities.
• E) by using zero-coupon Treasuries and by using stripped Treasuries if each coupon is treated as a separate "zero."

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Definitions:

NPV

Net Present Value, a calculation used to determine the present value of an investment's expected future cash flows compared to its initial cost.

Internal Rate

Refers to the internal rate of return (IRR), a financial metric used to estimate the profitability of potential investments.

Cash Flows

The entire sum of funds moving into and exiting a business, particularly impacting its liquidity and comprehensive financial well-being.

Payback Period

The length of time required to recover the cost of an investment, calculated by dividing the initial investment by the annual cash flow.