Chapter 4
Treasury rates
LIBOR rates
Repo rates
Define
Rc : continuously compounded rate
Rm: same rate with compounding m times per
year
Rm
Rc m ln 1
m
Rm m e Rc / m 1
12
Zero
Rate (%)
11
10.681 10.808
10.469 10.536
10
10.127
Maturity (yrs)
9
0 0.5 1 1.5 2 2.5
1 3.0
2 4.0 5.0
3 4.6 5.8
4 5.0 6.2
5 5.3 6.5
R2 T2 R1 T1
T2 T1
1 2B i ie
c t 2 yt i
C i 1
B y 2 B
so that
B 1
Dy C (y ) 2
B 2
1 year 3% 6%
5 year 4% 7%