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)A and B

Question

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)A and B

Quizplus · Accepted Answer

The pure yield curve is the theoretical yield curve based on the assumption that all bonds are default-free and highly liquid. Therefore, using zero-coupon Treasuries (option A) and stripped Treasuries (option B) are the best choices to estimate the pure yield curve. Option C, using corporate bonds with different risk ratings, would not give the pure yield curve as it includes credit risk premiums, and option D, estimating liquidity premiums for different maturities, would not account for default risk. Therefore, options A and B together are the best choices to estimate the pure yield curve.

The Pure Yield Curve Can Be Estimated