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Saturday, September 1, 2012

Open Yale Lecture 10


Debt Markets: Term Structure

CLASS NOTES


Keys: Interest rate, bonds, discount bonds, coupon, inflation index bonds



Discount bond
Principal $100
Price (you pay) $100 – discount

Treasury build
P = 100 - 99.58 = 2.510 x 60 /360 Discount rate
2.563 = (1/.9958 -1) x 366/60 Investment rate
Bills <= 1 year
Notes 1-10 years
Bonds 10+ years

Bonds
Coupon C
Principal 100
Pay C/2 every 6 months
P = c/2(1/(R/2 ) – 1/(1 + R/2) ^ 2 + 1/R/2 + 100 * 1/(1+R/2) ^2T

Term Structure
FMI) A yield curve displaying the relationship between spot rates of zero-coupon securities and their term to maturity.

Read more: http://www.investopedia.com/terms/t/termstructure.asp#ixzz25Lv0P0nq
Price of time
Theory of Interest
Prof. Irving Fisher
Irving Fisher Diagram

Forward rate
1939 JR Hicks Invented
The forward rate is the future yield on a bond. It is calculated using the yield curve. 

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