Pricing Conventions, Discounting, and Interest Rates
Free GARP FRM Part I lesson in Valuation and Risk Models. 20 min read, ~2,985 words.
Discount factor is the present value of $1 received at time t. Bond price = sum of cash flows times their discount factors. Law of one price: identical cash flows must have identical prices. Violation creates a riskless arbitrage opportunity. Spot rate is the yield on a zero-coupon bond maturing...
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What this lesson covers
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- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
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