Module 44.2: Spot Rates and Accrued Interest Flashcards

1
Q

How do you calculate the PV of a bond using spot rates for future cash flows?

A

amount of cash divided by the spot rate to the nth power, for example year 3 would be to the third power.

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2
Q

What is the formula to calculate the full price of a bond including accrued interest if you’re settling between coupon payment dates?

A

PV * (1 + YTM / # of coupon periods per year) ^ t/T

t = number of days since the last coupon payment
T = number of days in the coupon period.
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3
Q

How do you calculate accrued interest?

A

Coupon payment * (days since last payment / days between payments)

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4
Q

What is matrix pricing?

A

matrix pricing is a method of estimating the required yield-to-maturity (or price) of bonds that are currently not traded or infrequently traded.

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