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.
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.
3
Q
How do you calculate accrued interest?
A
Coupon payment * (days since last payment / days between payments)
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.