Financial Risk Manager (FRM, Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 2, Spot, Forward and Par Rates). Given the swap rate curve, we can infer the discount function (i.e., set of discount factors), spot rate curve, forward rate curve and par yield curve.
Learning objectives: Calculate and interpret the impact of different compounding frequencies on a bond’s value. Calculate discount factors given interest rate swap rates. Compute spot rates given discount factors.
902.1. Analyst Patricia is analyzing the following four bonds: