The pure yield curve can be estimated
A) by using zero-coupon Treasuries.
B) by using stripped Treasuries if each coupon is treated as a separate "zero."
C) by using corporate bonds with different risk ratings.
D) by estimating liquidity premiums for different maturities.
E) by using zero-coupon Treasuries and by using stripped Treasuries if each coupon is treated as a separate "zero."

Question

Quizplus · Accepted Answer

The pure yield curve, which reflects interest rates of zero-coupon bonds for different maturities, can be estimated using zero-coupon Treasuries and stripped Treasuries. Stripped Treasuries, where each coupon is treated as a separate zero-coupon bond, provide a way to construct a yield curve similar to that of zero-coupon bonds. This method isolates the interest rate component from other factors like credit risk or liquidity premiums, offering a clearer view of the yield curve based solely on interest rates.

The Pure Yield Curve Can Be Estimated