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Home Q & A Board Other Fields Homework Help Business Finance
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drewster127 drewster127
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4 years ago
Use the table for the question(s) below.

Suppose the term structure of interest rates is shown below:

Term1 year2 years3 years5 years10 years20 years
Rate (EAR%)5.00%4.80%4.60%4.50%4.25%4.15%


After examining the yield curve, what predictions do you have about interest rates in the future?  About future economic growth and the overall state of the economy?
Textbook 
Fundamentals of Corporate Finance

Fundamentals of Corporate Finance


Edition: 2nd
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wrote...
#1
4 years ago
This is an inverted yield curve, which implies that interest rates should be falling in the future.  An inverted yield curve is often interpreted as a negative forecast for economic growth.  Since each of the last six recessions in the United States were proceeded by a period with an inverted yield curve it could be a leading indicator of a future recession.
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