Hi David. Great video. Although, I couldn't understand one thing. At first you said, the 0.5 and 1 year maturities do not earn coupon. So I assume they are Treasury Bills. How come they are earning a 101.5 (principal + coupon) at t = 0.5 year and similarly 104 (P+C) at t = 1 year. Please help!!
okay, interesting feedback ... hopefully i improve with practice. Re: trying to explain the material to myself: absolutely true! what is the fun (challenge) in explaining those (very) few things i have already mastered? I'm much rather work on the things i am still trying to figure out
David, thanks for your videos... i've watched a number of them and find them very helpful, and very easy to get onboard with quickly to understand the content very swiftly. This particular video is a little blurry though-- makes it hard to concentrate because the excel sheets are not as clear as in your other videos...
Hi David! I am currently following a tutorial and it talks about building the long end of Discount Factors and Zero Curve using "PAR SWAP RATES". Can you please explain this concept and show how to calculate Par Swap Rates and then use them for DF and ZC?
great video Bionic Turtle! However, I think there is a small math error in your video. I think the spot for 1.5yr is 5.10% instead of 5.03%. Conceptually, it is a great way to understand this topic. Thanks again
AJFX Yes AJFX. Just apply the discount the spot at approp. time frame. So instead of discounting at 0.5, 1 and 1.5, just discount at 1, 2, 3... etc years for corresponding spot rate.
Can someone explain why the CF of $102.50 needs to include the principal? And let's say for a bond term of 2 years would you have to add the principal more than once for the CF?
HithereDiane The CF of $102.50 needs to include the principal because at maturity the bond is paid at par value ($100). So you are receiving the the CF every six months. So the cash flow is $2.50. The way bonds work is that you are paid the par value of the bond at the maturity so for a bond term of 2 years, you would have the cash flows over the spot rates for the first 3 periods or 1.5 years and then in the 4th period or year 2 when your bond matures you would receive the par value of 100+CF/(1+Z)^4. Does that make sense?
Hi, I am bit confused regarding bootstrapping..when we calculate the cash flows why is tht we use the ytm/coupon rate meaning when we are calculating spot rates for unknown maturirtes the cash flows derieve from ytm where do we get these ytm for these unknown maturities e.g the ytm for 2.5 terasury is 4% and ytm for 3.5 is 4.6% bit confused.
Hi, Great example, does not age. but I am confused: you set the first yield at 3% instead of the 1.5%, using the annual rate, but on the third bond, you use the 1.5 year rate, instead of adjusting it to a year. Is a yield curve using the actual rate (1.5 - 3.0 - 5.03) or the annual rates (3.0 - 4.0 - 3.35) ? (I hope question is clear...)
Could you upload the spreadsheet for this? It will mean a lot to me. Thanks!
Hi David. Great video. Although, I couldn't understand one thing. At first you said, the 0.5 and 1 year maturities do not earn coupon. So I assume they are Treasury Bills. How come they are earning a 101.5 (principal + coupon) at t = 0.5 year and similarly 104 (P+C) at t = 1 year. Please help!!
you saved my life from my ridiculously hard midterm tomorrow! Thanks
okay, interesting feedback ... hopefully i improve with practice. Re: trying to explain the material to myself: absolutely true! what is the fun (challenge) in explaining those (very) few things i have already mastered? I'm much rather work on the things i am still trying to figure out
David, thanks for your videos... i've watched a number of them and find them very helpful, and very easy to get onboard with quickly to understand the content very swiftly. This particular video is a little blurry though-- makes it hard to concentrate because the excel sheets are not as clear as in your other videos...
@JeromeCardon Every rate is expressed annually. The annual coupon rates are 3,4 and 5 not 3,4 and 3.35
Hi David! I am currently following a tutorial and it talks about building the long end of Discount Factors and Zero Curve using "PAR SWAP RATES". Can you please explain this concept and show how to calculate Par Swap Rates and then use them for DF and ZC?
Very useful! Thank you!
great video Bionic Turtle! However, I think there is a small math error in your video. I think the spot for 1.5yr is 5.10% instead of 5.03%. Conceptually, it is a great way to understand this topic. Thanks again
I got that as well
Spot rate is a better predictor of the value of bond (arbitrage free).
You will have to look at the yield using bloomberg or calculate it.
Brilliant!
Can this applied to a whole number of year maturities (eg. 0.5,1,2,3,4,5) for a annual coupon by eliminating the intermidiate half years
AJFX Yes AJFX. Just apply the discount the spot at approp. time frame. So instead of discounting at 0.5, 1 and 1.5, just discount at 1, 2, 3... etc years for corresponding spot rate.
Can someone explain why the CF of $102.50 needs to include the principal? And let's say for a bond term of 2 years would you have to add the principal more than once for the CF?
HithereDiane The CF of $102.50 needs to include the principal because at maturity the bond is paid at par value ($100). So you are receiving the the CF every six months. So the cash flow is $2.50. The way bonds work is that you are paid the par value of the bond at the maturity so for a bond term of 2 years, you would have the cash flows over the spot rates for the first 3 periods or 1.5 years and then in the 4th period or year 2 when your bond matures you would receive the par value of 100+CF/(1+Z)^4. Does that make sense?
Tanner Leif Yes, thank you.
Could have been arrived using goal seek?
so if you have treasuries information for 6mo/1yr/1.5yr, and 3yr;
how do you figure out the bootstrapped yield at year 1.5, year 2.0 and year 2.5?
Thanks a lot, saved my grade :)
Hi,
I am bit confused regarding bootstrapping..when we calculate the cash flows why is tht we use the ytm/coupon rate meaning when we are calculating spot rates for unknown maturirtes the cash flows derieve from ytm where do we get these ytm for these unknown maturities e.g the ytm for 2.5 terasury is 4% and ytm for 3.5 is 4.6% bit confused.
This is great tutorial
Thank you for watching! :)
Hey, great video. but I am confused on how you got coupon payments of $2.5 for the 18month bond. Shouldn't it be 5%*100=$5 ?
+Noel Lewis The coupons are semi-annual, so it has to be half of the 5% rate - the coupon rate is being quoted annually.
Hi,
Great example, does not age. but I am confused: you set the first yield at 3% instead of the 1.5%, using the annual rate, but on the third bond, you use the 1.5 year rate, instead of adjusting it to a year. Is a yield curve using the actual rate (1.5 - 3.0 - 5.03) or the annual rates (3.0 - 4.0 - 3.35) ?
(I hope question is clear...)
really well explained, thank you
You're welcome! Thank you for watching!
Gold