KIC000005

# KIC000005 - -YTM-c Spot If the spot rate term structure is...

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YTM V5, Spot Valuation All things semi-annual Suppose we have two years to maturity coupon payment is C, face va lue is F,the price is P. y is the VTM expressed as a BEY, Fabozzl uses z as half the annual spot rate for each six months. p=~+_C_+_c_+ C+F = Hl HI HJ'Hl' c C C C+F HfHJ"[I+!;'-(HJ'" YTM V5. Spot Curve We have seen that YTMfor coupons is a complicated average of spot rates. If the spot rate term structure is constant => all spot rates are the same across the term - YTM = Spot If the spot rate term structure is upward sloplnge> all spot rates are increasing across the term
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Unformatted text preview: -YTM-c Spot If the spot rate term structure is downward sloping=> all spot rates are decreasing across the term-YTM > Spot Problems with YTM Spread YTM is dependent on timing of cash flows. Comparing a defaultable security to a risk-free security with different cash flows impacts YTM What else are we assuming with YTM? Since we know the promised cash flows for a defaultable bond, we can use information about the term structure of risk-free spot rates to discount them. • • • 8...
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## This note was uploaded on 09/06/2011 for the course FIN 428 taught by Professor Hood during the Fall '11 term at Iowa State.

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KIC000005 - -YTM-c Spot If the spot rate term structure is...

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