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A Simple Model of Interest Rate Term Structure for the Classroom

Tom Arnold
Journal of Financial Education
Vol. 33 (SUMMER 2007), pp. 64-72
Stable URL: http://www.jstor.org/stable/41948561
Page Count: 9
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
A Simple Model of Interest Rate Term Structure for the Classroom
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Abstract

Without much technical expertise, a yield curve model is presented that is verydynamic and can be easily programmed in Excel for classroom presentation or for assignments. By using the output of the model to have students find embedded rates within the yield curve, a discussion of how bond traders speculate on interest rates emerges very easily. Further, the model output can also be used for numerous exercises including the pricing of strips or for evaluating the positions of an entire bond portfolio. Within the exercises, the dynamic nature of the model can be exploited to provide sensitivity analysis.

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