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  1. Nicole Seaman

    YouTube T3-11: Forward rates are implied by zero rates

    Forward rates link two zero (aka, spot) rates by ensuring your expected return is the same between two choices: (1) invest at the longer-term spot rate versus (2) invest at the shorter-term spot rate and "roll over" into the implied forward rate. This is an implied forward rate that ignores...
  2. Nicole Seaman

    YouTube T3-10: Yield to Maturity Interpretations

    Superficially, the yield to maturity (YTM, aka yield) simply inverts the usual time value of money (TVM) inputs by solving for the yield as a function of four inputs: face (future) value, coupon (payment), maturity (time), and current price (present value). But in terms of interpretation, I...
  3. Nicole Seaman

    YouTube T3-09: Theoretical price of a bond using spot rates

    The theoretical bond price is the present value if the future cash flows are discounted at the spot (aka, zero rates); in other words, it is the price given by discounted cash flow (DCF). We don't expect the traded (observed) price to exactly match because the DCF price is fundamental, yet...
  4. Nicole Seaman

    P1.T4.906. Annuities and yield to maturity (Tuckman Ch.3)

    Learning objectives: Compute a bond’s YTM given a bond structure and price. Calculate the price of an annuity and a perpetuity. Explain the relationship between spot rates and YTM. Questions: 906.1. Exactly one year ago, Sally purchased a $100.00 face value bond that pays a semi-annual coupon...
  5. Nicole Seaman

    P1.T4.903. Spot, forward and par rates (Tuckman Ch. 2)

    Learning objectives: Interpret the forward rate, and compute forward rates given spot rates. Define par rate and describe the equation for the par rate of a bond. Interpret the relationship between spot, forward, and par rates. Questions: 903.1. Assume the following discount function (note...
  6. Nicole Seaman

    P1.T4.902. Swap rates versus spot rates (Tuckman Ch. 2)

    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. Questions: 902.1. Analyst Patricia is analyzing the following four bonds: Bond...
  7. Nicole Seaman

    P1.T3.713. Spot and forward rates in bond pricing (Hull Chapter 4)

    Learning objectives: Calculate the theoretical price of a bond using spot rates. Derive forward interest rates from a set of spot rates. Derive the value of the cash flows from a forward rate agreement (FRA). Questions: 713.1. Consider the steep spot (aka, zero) rate curve illustrated below...
  8. Fran

    P1.T4.316. Tuckman's yield to maturity (YTM)

    AIMs: Define, interpret, and apply a bond’s yield-to-maturity (YTM) to bond pricing. Compute a bond's YTM given a bond structure and price. Explain the relationship between spot rates and YTM. Calculate the price of an annuity and a perpetuity. Questions: 316.1. Assume the following 2-year...
  9. P

    How to derive forward interest rates from spot rates (Hull vs Tuckman)

    Hi! I'm confused about forward interest rate calculation, Hull (ch 4) uses RF=(R2T2-R1T1)/(T2-T1), Tuckman (ch 2) instead computes from formula (1+r(0,2)/2)^4=(1+r(0,1.5)/2)^3+(1+f(1.5,2.0)/2)^1. I'm sure the answer is just here but I can't see... Is it about compounding? Should I memorize both...