Question

Explain the structure of interest rates? what interest rates are there? what are the main interest rates that affect market pricing in the world? also explain how interest rates affect bond pricing?

Answer 1

Answer :-

The word Structure of interest rates means it is the relationship between the interest rates and the bond yields. We can also said the structure of interest rates as the yield curve. A yield curve has to play a very main or vital role in the economy . The Structure we termed as the expectations about the trends of future related to market participants and future changes and analysis or assessment of monetary policy.

The interest rates in the Structure of interest rates are the U.S treasury yield curve and the interest rates of US government securities. It reports the return or yield of fixed income investments. The U.S. Treasury yield curve is included the 3-month, 2-year, 5-year and 30-year issued U.S. Treasury debt.

Types of various interest rates :-

Simple interest rates

Compound interest rates

Amortised interest rates

Fixed interest rates

Variable interest rates

Prime rate

Discount Rates

The main interest rates that affect market pricing in the world are the compounding rate , basic interest rates and the Coupon rates , discounting rates . These all are affecting market pricing in the world.

The interest rates are affecting the bond prices as if the rate of interest are falling after purchasing then the value of the bond would rise because now the investor can not buy the new issue bond as low coupon rate as compared to past year bonds in this case the value of the would would be high and the bond of the increased interest rates are selling at a high prices with a premium amount