32. Term Structure & Interest Rate Dynamics

Question 1

Term Structure Concepts

Answer 1

Term Structure. Spot Rate v/s Forward Rate. (Spot Rate = Zero Coupon rates)
Discount Factor. Spot Rate Yield Curve / Spot Curve
Yield to Maturity.
Expected Return V/s Realised Return on Bonds
3 Conditions Exp Return = Bond Yield

Holding Period Return??

Question 2

Forward Pricing Model

Forward Rate Model

Answer 2

Forward Pricing Model values forward contracts based on arbitrage-free pricing
P (j+k) = PjF(j+k)

Forward Rate Model relates forward rates and spot rates