L9b Zero Curve.pptx - Excel Modeling VBA Bond Pricing Zero Curve(Ch 10 S Dr Ronald K CHUNG FINA0404/3351 – Spreadsheet Modelling in Finance Time and

# L9b Zero Curve.pptx - Excel Modeling VBA Bond Pricing Zero...

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Excel Modeling: VBA Bond Pricing & Zero Curve (Ch 10, S) Dr. Ronald K. CHUNG FINA0404/3351 – Spreadsheet Modelling in Finance

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Time and YTM (Ch 10, S)
Spot and Forward Rates S pot rate: a rate agreed upon today for a loan to be made today. (e.g. r 1 =5% the current rate for a one-year loan is 5%). F orward rate: a rate agreed upon today for a loan to be made in the future. (e.g. 2 f 1 =7% contract today to borrow money at 7% for 1 yr, starting 2 yrs from today).

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Spot and Forward Rates S pot rates : a rate agreed upon today (e.g., r 1 =5.00%, r 2 =5.75%, r 3 =6.00%) We can either: Invest \$100 for three years , or: Invest \$100 for two years, and contract (today) at the one year rate, two years forward F orward rate: a rate agreed upon today (e.g. 2 f 1 =?% contract today to borrow money at 7% for 1 yr, starting in 2 yrs).
Forward Rates: no arbitrage Which investment strategy is optimal: Invest \$100 for 3 years: \$100*(1.06) 3 = Invest \$100 for 2 years, and invest the proceeds at the 2-year forward rate: \$100*(1.0575) 2 (1+ 2 f 1 ) =

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• Spring '17
• Forward contract, Forward price, Spot price, c DFt,  Forward rate

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