Treasury Zero Rates, Duration and Convexity
About the Lecture
The lecture Treasury Zero Rates, Duration and Convexity by Edu Pristine is from the course Archiv - Financial Markets and Products. It contains the following chapters:
- Treasury zero rates
- Forward Rate Agreements
- Duration
- Convexity
- Calculating Bond Price Changes
- Theories of the Term Structure
Author of lecture Treasury Zero Rates, Duration and Convexity
Edu Pristine
Customer reviews
5,0 of 5 stars
| 5 Stars |
|
5 |
| 4 Stars |
|
0 |
| 3 Stars |
|
0 |
| 2 Stars |
|
0 |
| 1 Star |
|
0 |
Excerpts from the accompanying material
... paid at their par (face amount) at maturity. The purchase price is expressed as a price per hundred dollars: Bills are sold at a discount. The discount rate is determined at auction: Bills pay interest only at maturity. The interest is equal to the face value minus ...
... of rising interest rates, while the seller hedges against the risk of falling interest rates. Payment to the long at settlement = Notional Principal X (Rate at settlement-FRA Rate) ...
... he receives his payments on the bond. A coupon paying bond’s duration would be lower than n as the holder gets some of his payments in the form of coupons before n years Macaulay’s duration: Is the weighted average of ...
... trading at 96.54 with duration of 4.5 years. ...
... However if the yield changes are high then we use the measure of convexity along with duration. Convexity is a measure of the curvature of the price/yield ...
... more when interest rates are low than when they are high. To make the convexity of a semi-annual bond comparable to that of an annual bond, we can divide the convexity by ...
... We can approximate the change in a bond’s price for a given change in yield by ...
... exist for securities of short term bonds and long term bonds. Supply demand conditions decide the prices. Where rpn is the risk premium associated with an n year bond ...
... “mature's” on the coupon payment date. The yield curve describes the yield differential among treasury issues of differing maturities.The Yield Curve is the graph created by putting term to maturity on the X axis, YTM on the Y axis and then plotting the yield at each ...
... Value at the end of agreement ...
... And the weights are a ratio of the coupon paid at time t to the present bond price. Where: t = respective time period, C = periodic coupon payment, y = periodic yield, n = total no of periods ...
... A bond's interest rate risk is affected by: yield to maturity, term to maturity, size of coupon. From Macaulay’s equation we get a key relationship: In the case of a continuously compounded yield the duration used is modified duration given as: ...
... Note that this is the second partial derivative of the bond valuation equation w.r.t. the yield hence, convexity is the ...
... due to a fall in YTM is greater than the price decline due to a rise in YTM, given an identical change in the YTM. For a given change in YTM, bond prices will ...
... Question 23: If yields rise by 1% ...
... geometric mean of expected future short interest rates. Liquidity preference theory: Investors must be paid a “liquidity premium” to hold less liquid. Long-term debt market segmentation theory: Investors decide in advance whether they want to invest in short term or the long term. Distinct markets ...
... sloping: This is the most persistent shape historically when short-term interest rates and inflation are low. Downward sloping (Declining): This occurs at peaks in the short-term interest rate cycle, when inflation is expected to decrease in the future. Flat: This shape is evident during periods of ...
... yield curve below and the economic ...
