Risk Management and Capital Budgeting
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Depicts the compount annual return earned by the investor. THis method is preferred for evaluating long-term investments
Relative Risk or "coefficient of variation"
Standard Deviation of the return / expected return
Market Segmentation Theory
States that the Treasury securities market is divided into market segments by the various financial institutions investing in the market. Life insurance companies prefer long-term securities and therefore are an identifier of long-term interest rates
Effective Interest Rate (EFR)
EFR = (1 + (Stated Interest Rate / Compounding Frequency)) ^Compounding Frequency power -1
Yield Curve in relation to Inflation
If inflation is expected to increase, interest rates are expected to rise and therefore, intermediate-term and long-term rates will be higher than short-term rates
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