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11 Cards in this Set
- Front
- Back
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Spot yield curve X and y Discount factor Discount function |
Graph of rate against period Today's rate if 1dollar to be received in different period ( 6 months, or 1 year and so on. ) Discount factor and spot rate mapping for different period
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Forward curve 3 yr loan starting at t2 F for price ( calculate by discount factor), f for rate |
Rate. .. r ( t,1) against period , If spot curve is upward sloping then forward curve will be upward sloping Cube root of (1+r2)(1+r3)(1+r4) |
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If forward rate given spot rate |
Eg: 3 √ r3,1;, r4,1,;5,1 |
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Forward rate model |
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Relation btw spot curve and forward rate curve |
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Find spot if series of fwd rate given |
Spot price is a geometric mean |
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Yield to maturity against spot rates |
Weighted avg |
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Ytm is expected return? |
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Expected return is not ytm, it's calculation is annualised hpr Hpr Annualised hpr |
End - original/ original. Fv- PV/PV (1+hpr) power nth root of no of years ie 1/t. |
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f(1,1) > r(2) f(1,2) > f(1,1) ,In eg it's year fwd If r(30) then max fwd is f(4,26) Why yield and price are inverse in relationship ?? |
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riding the yield curve |
Wider the spread , longer the bond, greater the total return. |
