Lecture14Stockmarketbasicsandstockpricing.pptVIP

Lecture 14: Stock market basics and stock pricing Mishkin Ch 7 – part A 159 Plus supplementary lecture notes Review Term structure of interest rate Yield curve Expectations theory long-term interest rate = average of short-term interest rates. Segmented markets theory Liquidity premium theory long-term interest rate = average + liquidity premium liquidity premium 0 and increase with maturity Interpret the yield curve using liquidity premium theory You can figure out what the market is predicting about future short-term interest rates by looking at the slope of the yield curve. Stocks A s