CFAhavemercy
New member
- Jun 18, 2026
- 0
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Hi guys,
I have a question, hopefully you can help….. Assuming flat yield curve of 6%, a 3 yr bond issued at par with annual coupon of 6%. What is the bonds expected return if trader predicts yield curve will 1 year from today will be a flat 7%…..
I thought answer would be calculated as { (6/1.06) + (6 / 1.07^2) + (106 / 1.07^3) } / 100, less 1
Answer shown is ………………
{6 + (6 / 1.07) + (106 / 1.07^2) } / 100, less 1
I don’t understand why the first cash flow is not discounted at spot rate at time and why subsequent cash flows are a period behind….. If anyone out there could help me understand why it would be greatly appreciated…. Cheers for taking time to read this post
I have a question, hopefully you can help….. Assuming flat yield curve of 6%, a 3 yr bond issued at par with annual coupon of 6%. What is the bonds expected return if trader predicts yield curve will 1 year from today will be a flat 7%…..
I thought answer would be calculated as { (6/1.06) + (6 / 1.07^2) + (106 / 1.07^3) } / 100, less 1
Answer shown is ………………
{6 + (6 / 1.07) + (106 / 1.07^2) } / 100, less 1
I don’t understand why the first cash flow is not discounted at spot rate at time and why subsequent cash flows are a period behind….. If anyone out there could help me understand why it would be greatly appreciated…. Cheers for taking time to read this post