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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.
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 about the mathematical analysis of "collect all coupons and win" contests, also known as the cereal box problem. Find the expected number of trials, the limit distribution, and the generalizations of the problem.
Nominal yield is the fixed interest rate that the issuer of a fixed income security agrees to pay to the holder each year. Learn how it differs from current yield and how it is stated in the name of the bond.
U.S. government bond: 1976 8% Treasury Note. A government bond or sovereign bond is a form of bond issued by a government to support public spending.It generally includes a commitment to pay periodic interest, called coupon payments, and to repay the face value on the maturity date.
Dirty price is the price of a bond including any interest that has accrued since the last coupon payment. Learn how to calculate the dirty price, clean price, and accrued interest of a bond, and see an example of a corporate bond trade.
Discounting is a mechanism in finance that allows a debtor to delay payments to a creditor in exchange for a fee. The fee is based on the discount rate, which is the rate of return the creditor could earn on a similar investment. Learn how to calculate the present value and the discount factor of future cash flows.