Spot Curve, Par curve and Forward Curve
Yields-to-maturity for zero-coupon government bonds could be analyzed for a full range of maturities called the government bond spot curve (or zero curves). Government spot rates are assumed to be risk-free. Spot Curve The spot curve is upward-sloping and flattens…
Par and Forward Rates
Par Rates A par rate is the yield-to-maturity that equates the present value of a bond’s cash flows to its par value (typically \(100\%\) of face value). Spot rates play a pivotal role in determining par rates. For a bond…
Spot Rates, Spot Curve, and Bond Pricing
Spot Rates Spot rates are the market discount rates for default-risk-free zero-coupon bonds. Unlike typical bonds that offer periodic interest payments, these bonds are sold at a discount and repaid at face value upon maturity. Sometimes referred to as “zero…
Identifying the Type of Market Structures
Monopoly markets and situations where companies hold significant pricing power can result in market inefficiencies, as the monopolies tend to constrain output in order to sell at higher prices. Due to this, many countries have a competition law that regulates…
Oligopoly Competition
What Is Oligopoly Competition? An oligopoly is a market structure in which a small number of large firms dominate an industry. Because only a few firms compete, each company’s pricing and production decisions directly influence its competitors, making strategic decision-making…
Monopolistic Competition
What Is Monopolistic Competition? Monopolistic competition is a market structure in which many firms sell similar but differentiated products. Because products are not identical, firms have some ability to influence prices through branding, quality, customer service or product features. Examples…
Characteristics of Market Structures
What Are Market Structures? Market structures describe the competitive environment in which firms operate. They determine how prices are set, how much competition exists and how easily new firms can enter or leave a market. In economics, market structures are…
Breakeven Analysis
What Is Breakeven Analysis? Breakeven analysis helps determine the level of output or sales at which a firm’s total revenue equals its total cost. At the breakeven point, economic profit is zero because the firm earns just enough revenue to…
Yield Spread Measures for Money Market Instruments
Money market instruments are short-term debt securities with original maturities of one year or less. They are a crucial part of the financial market and include a variety of instruments such as overnight sale and repurchase agreements (repos), bank certificates…
Yield Spread Measures for Floating-rate Instruments
Floating Rate Instruments Floating-rate instruments, such as floating-rate notes (FRNs) and most loans, differ from fixed-rate bonds in their periodic payment dynamics. Their interest payments fluctuate based on a reference interest rate, ensuring the borrower’s base rate remains aligned with…
