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ACI – THE FINANCIAL MARKETS ASSOCIATION
EXAMINATION FORMULAE – 2009 VERSION
page number INTEREST RATE……………….………………………………………………….2 MONEY MARKET…..……………...………………………………………………3 FORWARD-FORWARDS & FORWARD RATE AGREEMENTS……………..4 FIXED INCOME…………………...…………………………………………….….5 FOREIGN EXCHANGE……………………………………………………………7 OPTIONS……………………………………………………………………………8
In all the formulae: • • • • interest rates, yields, coupon rates and rates of discount are expressed as a decimal, eg 8.53% will be expressed as 0.0853 ‘annual basis’ is the number of days in a year assumed under the appropriate rate convention ‘term’ is the number of days from settlement to maturity of the instrument in question ‘day count’ is the number of days from settlement to maturity of the instrument in question.
INTEREST RATE CONVERSIONS
Converting between bond basis and money market basis (Act/360)
rate bond basis = rate money market basis 365 360
rate money market basis = rate bond basis
360 365
Converting between annually and semi-annually compounding frequencies
rate semi-annually compounded ⎛ = ⎜1 + ⎜ 2 ⎝ ⎞ ⎟ -1 ⎟ ⎠
−1 2
2
rate annually -compounded
rate semi-annually compounded =
( 1 + rate
annually compounded
)
The formulae for converting between annually and semi-annually compounded rate apply only to rates quoted on a bond basis, not a money market basis.
2
MONEY MARKET
Certificates of deposit
proceeds at maturity = face value ( 1 + coupon x term ) annual basis
secondary market proceeds = proceeds at maturity yield x day count 1+ annual basis
Discount-paying instruments quoted as a true yield
secondary market proceeds = face value yield x day count 1+ annual basis
Discount-paying instruments quoted as a rate of discount
rate of discount x day count annual basis
discount amount = face value
⎛ rate of discount x day count ⎞ secondary market proceeds = face value ⎜1 ⎟ annual basis ⎝ ⎠
true yield =
rate of discount rate of discount x day...