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Hi guys, I have a question regarding discounting methods with computing value for plain-vanilla interest rate swaps. Say, the risk-free rate is 4%. and the payments are semi-annually made in year 0.5, 1.0and 1.5. In the denominator, do we use 1.02, (1.02)^2, (1.02)^3, or do we simply use...

I just realized that confidence interval and confidence level are two different things? When we calculate 95% VaR, we get 1.645 whereas if we do 95% confidence interval for Black-Scholes Merton model, we get the z-value for 1.96? Can anyone please illustrate the difference in these two? Many thanks.

That perfectly explains, thank you David!

It is such a brain teaser to understand these things.. I think I'm almost getting to it, however there's one last thing I'm still confused with. When it says "during the next six months", doesn't it mean from year 4.5 to year 5? Also, based on the prevailing statement that bond price increases...

Hi David, I have another question related to this. Question: The coupon rate on a five-year bond is higher than the forward rate between time 4.5 years and time five years. If forward rates do not change do you expect the bond price to increase or decrease during the next six months? Answer: It...

Thank you David, that clarifies and it helps a bunch.

Hi guys, I came across something on the textbook and found it very off. The statement: In the case of an upward-sloping term structure, there will be a tendency for the forward rate to be higher than the coupon so that bond price rises. Is this statement correct? Thanks in advance.

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