Pricing Conventions, Discounting, and Interest Rates
Free GARP FRM Part I lesson in Valuation and Risk Models. 22 min read, ~3,338 words.
Discount factor is the present value today of $1 received at time t; bond price equals the sum of cash flows times their discount factors. Law of one price: identical cash flows must carry identical prices, and any violation creates a riskless arbitrage opportunity. Spot rate is a zero-coupon yield...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
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