Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Year 1 2 3 4
Discount rate 6.8% 7.2% 7.6% 8.0%
1
Valuing Semiannual Cash Flows
2
Valuing Semiannual Cash Flows
Example:
Consider
C id againi a 4-year
4 b d 10% coupon, par value
bond, l US$100
US$100,
paying semiannual coupons. If the annual discount rate is 8%,
the cash flows for this bond are:
3
Valuing a Zero-Coupon Bond
4
Valuing a Zero-Coupon Bond
Example:
Compute
C t the
th value
l off a 5-year
5 zero-coupon bond
b d with
ith a maturity
t it
value of US$100, discounted at an 8% rate.
5
Yield Measures
where:
P0 = initial p
price of the instrument
P1 = price received for instrument at maturity
D1 = interest payment (distribution)
6
Yield Measures
Example:
Whatt is
Wh i the
th HPY for
f a T-bill
T bill priced
i d att US$98,500
US$98 500 with
ith a face
f
value of US$100,000 and 120 days remaining until maturity?
7
Yield Measures
EAY = (1 + HPY)365/t 1
8
Yield Measures
Example:
Calculate
C l l t the
th EAY using
i HPY off 1.5228%
1 5228% from
f the
th previous
i
example.
(1 015228)365/120 1 = 1.047042
EAY = (1.015228) 1 047042 1 = 4.7042%
4 7042%
(1.047042)120/365 - 1 = 1.5228%
9
Forward Rates
For example:
As a notation, 1f1 is the rate for a 1-year loan one year from
now, and 1f2 is the 1-year loan to be made two years from now,
etc.
10
The Relationship Between Forward Rates and Spot Rates
The idea here is that borrowing for three years at the 3-year
rate or borrowing for 1-year periods, three years in succession,
should
h ld have
h the
th same cost.
t
which is the g
geometric mean.
11
The Relationship Between Forward Rates and Spot Rates
Example:
If the
th currentt 1-year
1 rate
t is
i 2%,
2% the
th 1-year
1 f
forward
d rate
t (1f1) is
i
3% and the 2-year forward rate (1f2) is 4%, what is the 3-year
spot rate?
12
The Relationship Between Forward Rates and Spot Rates
Example:
13
Computing the Value of a Bond Using Forward Rates
Example:
14
Duration
Calculating Duration
Effective Duration
Approximating the Percentage Price Change Using Duration
Calculating the New Price of a Bond Using Duration
Calculating Portfolio Duration
Convexity Adjustment
Estimating Price Changes with Duration and Convexity
Price Value of a Basis Point
15
Duration
in another expression
expression,
17
Calculating Effective Duration
Example:
18
Approximating the Bond Price Change When Yields Increase
Example:
19
Approximating the Bond Price Change When Yields Decrease
Example:
If a bond has a duration of 7.2 and the yield decreases from 8.3%
to 7.9%, calculate the percentage price change in the bond price.
20
Calculating Duration Given a Yield Increase
Example:
21
Calculating Duration Given a Yield Decrease
Example:
22
Calculating the New Price of a Bond
Example:
23
Portfolio Duration
where:
24
Calculating Portfolio Duration
Example:
25
Convexity Adjustment
The reason we care about convexity is that the more curved the
price-yield relation is, the worse our duration-based estimates of
bond price changes in response to changes in yield are.
26
Convexity Adjustment
27
Estimating Price Changes With Duration and Convexity
Example:
28
Price Value of a Basis Point (PVBP)
29
Price Value of a Basis Point (PVBP)
Example:
30