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Par yield is the yield on a fixed income security when its price is equal to par value. It is used to derive the U.S. Treasury’s daily official yield curve rates and to avoid the coupon effect in bond valuation.
A forward rate is the future yield on a bond, calculated using the yield curve. Learn how to extract the forward rate using different rate calculation modes (simple, yearly compounded or continuously compounded) and related instruments (forward rate agreement, floating rate note).
Duration is a measure of the sensitivity of the price of a financial asset to changes in yield. It can be calculated as the weighted average of the times until the fixed cash flows or as the rate of change of price with respect to yield.
Learn how to calculate the current yield of a bond, a financial term that measures the annual interest payment and the bond price. Find out the shortcomings and limitations of current yield and its relationship with other bond concepts.
Learn how 30/360 methods calculate interest accrual for bonds and loans based on 30-day months and 360-day years. Compare different variations of 30/360 methods and their adjustment rules for US and European markets.
Given: 0.5-year spot rate, Z1 = 4%, and 1-year spot rate, Z2 = 4.3% (we can get these rates from T-Bills which are zero-coupon); and the par rate on a 1.5-year semi-annual coupon bond, R3 = 4.5%. We then use these rates to calculate the 1.5 year spot rate. We solve the 1.5 year spot rate, Z3, by the formula below:
A coupon is the interest payment received by a bondholder from the date of issuance until the date of maturity of a bond. Learn about the history, valuation, and types of bonds, including zero-coupon bonds that pay no coupons and have a price less than their face value.
Volatility and interest rate risk: Without regular interest payments to cushion price fluctuations, zero-coupon bonds are more volatile than short-term bonds. In general, the current value of any ...