Transcript FMCh27.ppt

Term Structure
MGT 4850
Spring 2009
University of Lethbridge
Interest Rate Term Structure
• http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve
Bootstrapping method
Uses available price data to calculate yield
Uses available yield curve to calculate implied
forward
Calculating the term structure
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http://www.bankofcanada.ca/en/rates/tbill-look.html
Zero coupons and their prices
Treasury notes
Treasury bonds
Bootstrapping coupon payments and bond prices
Pricing of Treasury Bonds
• To find the price of a bond, discount
the cash flows of the bond at the
appropriate spot rates:
Ct
P0  
t
t 1 (1  Rt )
N
5
Pricing of Swaps
• Implied forward rates
• Discount factors
• Solving for the fixed rate