Bond Markets • 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 • Annual effective rate AER = (1 + APR/m)m – 1 • Continuous compounding m → ∞ ⇒ AER → eAPR – 1 • General bond pricing formula

• General bond pricing formula with ann. APR

• Zero coupon bond price and yield

• Perpetuity price and yield

• Annuity price

• Coupon bond price

Term Structure of Interest Rates • Brandt’s preferred yield model

• Brandt’s preferred discount function model Forward rates implied by spot rates

• Spot rates implied by forward rates

Price Sensitity and Hedging • Dollar value of a basis point

• Duration

• Macaulay duration of zero coupon bond

• Macaulay duration of coupon bond

• 1st-order approximation of bond price change

• 1st-order approximation of DV01

• Convexity

• Convexity of zero-coupon bond

• Convexity of coupon bond

• 1st-order approximation of duration change

• 2nd-order approximation of bond price change

• Duration of portfolio

• Duration neutral portfolio

• Volatility weighted duration neutral portfolio

• Regression-based duration neutral portfolio