Bond Markets • Spot rates implied by forward rates

• T bill price

• T note and T bond price

Invoice Price = Flat Price + Accrued Interest
• Repo interest
Interest = loan amount × repo rate × 1/360
• Repo gain/loss
capital gain/loss on entire bond + carry

Bond Valuation Price Sensitity and Hedging

• Annual effective rate • Dollar value of a basis point
AER = (1 + APR/m)m – 1
• Continuous compounding • Duration
m → ∞ ⇒ AER → eAPR – 1
• General bond pricing formula
• Macaulay duration of zero coupon bond

• General bond pricing formula with ann. APR • Macaulay duration of coupon bond

• Zero coupon bond price and yield • 1st-order approximation of bond price change

• 1st-order approximation of DV01

• Perpetuity price and yield

• Convexity
• Annuity price

• Convexity of zero-coupon bond

• Convexity of coupon bond

• Coupon bond price

• 1st-order approximation of duration change

• 2nd-order approximation of bond price change

Term Structure of Interest Rates • Duration of portfolio

• Brandt’s preferred yield model

• Brandt’s preferred discount function model • Duration neutral portfolio

Forward rates implied by spot rates

• Volatility weighted duration neutral portfolio

• Regression-based duration neutral portfolio