FMP 16. Properties of Interest Rates
Learning Objectives
1) Describe Treasury rates, LIBOR, Secured Overnight Financing Rate (SOFR), and repo rates, and explain what is meant by the “risk-free” rate.
2) Calculate the value of an investment using different compounding frequencies.
3) Convert interest rates based on different compounding frequencies.
4) Calculate the theoretical price of a bond using spot rates.
5) Calculate the Macaulay duration, modified duration, and dollar duration of a bond.
6) Evaluate the limitations of duration and explain how convexity addresses some of them.
7) Calculate the change in a bond’s price given its duration, its convexity, and a change in interest rates.
8) Derive forward interest rates from a set of spot rates.
9) Derive the value of the cash flows from a forward rate agreement (FRA).
10) Calculate zero-coupon rates using the bootstrap method.
11) Compare and contrast the major theories of the term structure of interest rates.