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Term Structure

Term Structure . MGT 4850 Spring 2008 University of Lethbridge. Interest Rate Term Structure. http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve. Bootstrapping method. Uses available price data to calculate yield Uses available yield curve to calculate implied forward.

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Term Structure

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  1. Term Structure MGT 4850 Spring 2008 University of Lethbridge

  2. Interest Rate Term Structure • http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve

  3. Bootstrapping method Uses available price data to calculate yield Uses available yield curve to calculate implied forward

  4. Calculating the term structure • http://www.bankofcanada.ca/en/rates/tbill-look.html • Zero coupons and their prices • Treasury notes • Treasury bonds • Bootstrapping coupon payments and bond prices

  5. Pricing of Treasury Bonds • To find the price of a bond, discount the cash flows of the bond at the appropriate spot rates:

  6. Pricing of Swaps • Implied forward rates • Discount factors • Solving for the fixed rate

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