The pure yield curve can be estimated

Question

Quizplus · Accepted Answer

The pure yield curve represents the theoretical yield curve assuming no liquidity or credit risk. It can be estimated by using zero-coupon bonds as they do not have any coupon payments and therefore, the yield represents only the pure yield for that maturity. Coupon bonds can also be used to estimate the pure yield curve if each coupon is treated as a separate "zero." This is because each coupon represents a separate cash flow and can be discounted separately to arrive at the pure yield for that maturity. Therefore, option E is the best choice as it includes both of these methods. Corporate bonds with different risk ratings and estimating liquidity premiums for different maturities are not directly related to estimating the pure yield curve.

The Pure Yield Curve Can Be Estimated