Question #64
Reading: Reading 25 The Term Structure and Interest Rate Dynamics
PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf
Page: 26
Status: Unattempted
Question
Joe McBath makes the following two statements: Statement 1: The swap rate curve indicates credit spread over government bond yield. Statement 2: The swap rate curve indicates the premium for time value of money at different maturities. Joseph is most likely correct with regard to:
Answer Choices:
A. Both statements
B. Statement 1 but not statement 2
C. Statement 2 but not statement 1
Explanation
Swap rates are not spreads and hence the swap rate curve does not indicate credit
spread. The swap rate curve can be used instead of government bond yield curve to
indicate premium for time value of money.