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Yield Curve Analysis: Choosing the optimal maturity date of investments and financing

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  • Lenz, Rainer

Abstract

The shape of the yield curve determines the relationship between interest rate risk and return of investments. The analysis of the yield curve can help the investor or financier decide whether to take a short- or long term bond or loan. The management decision of choosing an optimal maturity depends on three form-giving factors of the yield curve: the general level of interest rates, the slope and the curvature of the curve. By using implicit forward rates the decision situation of investors and financiers is modeled and general decision rules for financial managers are derived.

Suggested Citation

  • Lenz, Rainer, 2010. "Yield Curve Analysis: Choosing the optimal maturity date of investments and financing," MPRA Paper 27781, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:27781
    as

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    File URL: https://mpra.ub.uni-muenchen.de/27781/1/MPRA_paper_27781.pdf
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    References listed on IDEAS

    as
    1. Guedes, Jose & Opler, Tim, 1996. " The Determinants of the Maturity of Corporate Debt Issues," Journal of Finance, American Finance Association, vol. 51(5), pages 1809-1833, December.
    2. Franco Modigliani & Richard Sutch, 1967. "Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience," Journal of Political Economy, University of Chicago Press, vol. 75, pages 569-569.
    3. Frederick C. Scherr & Heather M. Hulburt, 2001. "The Debt Maturity Structure of Small Firms," Financial Management, Financial Management Association, vol. 30(1), Spring.
    4. John H. Cochrane & Monika Piazzesi, 2005. "Bond Risk Premia," American Economic Review, American Economic Association, vol. 95(1), pages 138-160, March.
    5. Gerlach, Stefan, 1997. "The Information Content of the Term Structure: Evidence for Germany," Empirical Economics, Springer, vol. 22(2), pages 161-179.
    6. Robin Grieves & Alan J. Marcus, 1990. "Riding the Yield Curve: Reprise," NBER Working Papers 3511, National Bureau of Economic Research, Inc.
    7. Petko Kalev & Brett Inder, 2006. "The information content of the term structure of interest rates," Applied Economics, Taylor & Francis Journals, vol. 38(1), pages 33-45.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    yield curve; term structure of interest rates; implicit forward rates; expectation theory; optimal maturity of investments;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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