VRM 10. Interest Rates: LOs

a) Calculate and interpret the impact of different compounding frequencies on a bond’s value.

b) Define spot rate and compute discount factors given spot rates .

c) Interpret the forward rate and compute forward rates given spot rates.

d) Define par rate and describe the equation for the par rate of a bond.

e) Interpret the relationship between spot, forward, and par rates.

f) Assess the impact of maturity on the price of a bond and the returns generated by bonds.

g) Define the “flattening” and “steepening” of rate curves and describe a trade to reflect expectations that a curve will flatten or steepen.

h) Describe a swap transaction and explain how a swap market defines par rates.

i) Describe overnight indexed swaps (OIS) and distinguish OIS rates from LIBOR swap rates.