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1、7InterestRateForwardsandFuturesupposeyouhavetheopportunitytospend$1oneyearfromtodaytoreceive$2twoyearsSfromtoday.Whatisthevalueofthisopportunity?Toanswerthisquestion,youneedtoknowtheappropriateinterestratesfordiscountingthetwocashflows.Thiscomparisonisanexample
2、ofthemostbasicconceptinfinance:usinginterestratestocomputepresentvalues.Oncewefindapresentvalueforoneormoreassets,wecancomparethevaluesofcashflowsfromthoseassetsevenifthecashinflowsandcashoutflowsoccuratdifferenttimes.Inordertoperformthesecalculations,weneedinforma
3、tionaboutthesetofinterestratesprevailingbetweendifferentpointsintime.Webeginthechapterbyreviewingbasicbondconcepts—couponbonds,yieldstomaturity,andimpliedforwardrates.Anyreaderofthisbookshouldunderstandthesebasicconcepts.Wethenlookatinterestrateforwardsandforw
4、ardrateagreements,whichpermithedginginterestraterisk.Finally,welookatbondfuturesandtherepomarket.7.1BONDBASICSTable7.1presentsinformationaboutcurrentinterestratesforbondsmaturinginfrom1to3years.Identicalinformationispresentedinfivedifferentwaysinthetable.Althou
5、ghtheinformationappearsdifferentlyacrosscolumns,itispossibletotaketheinformationinanyonecolumnofTable7.1andreproducetheotherfourcolumns.1Inpractice,awiderangeofmaturitiesexistsatanypointintime,buttheU.S.governmentissuesTreasurysecuritiesonlyatspecificmaturities
6、—typically3months,6months,and1,2,5,10,and30years.2Governmentsecuritiesthatareissuedwithlessthan1yeartomaturityandthatmakeonlyasinglepayment,atmaturity,arecalledTreasurybills.Notesandbondspaycouponsandareissuedatapriceclosetotheirmaturityvalue(i.e.,theyareissue
7、datpar).Noteshave10orfeweryearstomaturityandbondshavemorethan101.Dependinguponhowyoudothecomputation,youmayarriveatnumbersslightlydifferentfromthoseinTable7.1.Thereasonisthatalloftheentriesexceptthoseincolumn1areroundedinthelastdigit,andtherearemultiplewaystoc
8、omputethenumberinanygivencolumn.Roundingerrorwillthereforegeneratesmalldifferencesamongcomputationsperformedindifferentways.2.Treasurysecuritiesareissuedusinganauction.Inthepastthe
