This chapter begins with a discussion of the use of interest rates in asset valuation. During the Great Recession, the Federal Reserve has navigated U.S. interest rates lower by first reducing the target for the federal funds rate to zero, and then engaging in a process of quantitative easing by purchasing longer-term securities. The effect of the Federal Reserve's actions has been to lower interest rates that affect valuation models across all assets and investments. The chapter then discusses interest rate yield curve, covering the types of yield curves, why the yield curve may be flat or inverted, the increase in market demand for long-term securities, and long-term yield affected by Federal Reserve monetary policy.
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