1. Term Structure MGT 4850 Spring 2009 University of Lethbridge

2. Interest Rate Term Structure http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve

3. Bootstrapping method Uses available price data to calculate yield Uses available yield curve to calculate implied forward

4. Calculating the term structure http://www.bankofcanada.ca/en/rates/tbill-look.html Zero coupons and their prices Treasury notes Treasury bonds Bootstrapping coupon payments and bond prices

5. 5 Pricing of Treasury Bonds To find the price of a bond, discount the cash flows of the bond at the appropriate spot rates:

6. Pricing of Swaps Implied forward rates Discount factors Solving for the fixed rate