FMP 16. Properties of Interest Rates: LOs

a) Describe Treasury rates, LIBOR, Secured Overnight Financing Rate (SOFR), and repo rates, and explain what is meant by the “risk-free” rate.

b) Calculate the value of an investment using different compounding frequencies.

c) Convert interest rates based on different compounding frequencies.

d) Calculate the theoretical price of a bond using spot rates.

e) Calculate the Macaulay duration, modified duration, and dollar duration of a bond.

f) Evaluate the limitations of duration and explain how convexity addresses some of them.

g) Calculate the change in a bond’s price given its duration, its convexity, and a change in interest rates.

h) Derive forward interest rates from a set of spot rates.

i) Derive the value of the cash flows from a forward rate agreement (FRA).

j) Calculate zero-coupon rates using the bootstrap method.

k) Compare and contrast the major theories of the term structure of interest rates.