03rec2

03rec2 - 15.407 Recitation MIT Sloan School of Management...

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15.407 Recitation September 25, 2003
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MIT Sloan School of Management Things to cover today: Fixed Income Concepts: 1. Bonds 2. Spot rates, Forward rates and YTM 3. Duration and Convexity 4. Market conventions
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Fixed Income: Very roughly, things that have a promised payments, and derivatives drawn on them: Examples: Bonds, Swaps, Credit derviatives Today we will focus on (riskless) bonds. How to price a bond? If payments are riskless, then we can just use the PV formula. But the difference between today and last week is that we do not yield curve (interest rates) is constant anymore. Characteristics of bonds: (A)Distribution of cashflow: (i) Discount bond: Bonds that pays you a fixed amount at maturity (ii) Coupon bond: Bonds that pays you in many periods (coupon), and the principle + coupon at the end
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(i) Fixed (Nominal): Have a constant nominal interest rate. (ii) Floating: Interest rate varies each period. (iii) TIPS: Constant REAL interest rate.
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This note was uploaded on 01/19/2011 for the course 15 15.407 taught by Professor Wang during the Fall '03 term at MIT.

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03rec2 - 15.407 Recitation MIT Sloan School of Management...

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