FNCE30001 Chapter Notes - Chapter 5: Summary Statistics, United States Treasury Security, Yield Curve
29 Jun 2020
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Wcf 5 - time-varying rates of return and the yield curve. Interest rates can differ based on the length of the commitment. Spot rates = interest rates that begin right now. Forward rates = interest rates that begin in the future. Annualised rates of return are convenient units of measurements for comparison. The total holding rate of return over t years, r0,t, is translated into an annualised rate of return, rt-, by taking the t-th root (1+rt-) = (1+r0,t)1/t. Macauley duration replaces cash flow with present value. Summary statistic of when the average cash flow is going to occur. Inflation is the increase in the price of the same good. A contract that ignores inflation is in nominal terms. A contract in real terms or inflation-indexed terms accounts for inflation. Nominal return is the quoted return not adjusted for inflation.
