In fixed income, discounting happens with the formula - value / (1 + r/100)^t, t = period.
However, while discounting FRA, formula - value / 1 + r * t
something like = 1000, 180 days libor = 6%,
bond = 1000 / (1.06)^180/360 = 971.2859
FRA = 1000 / (1 + .06*180/360) = 970.8738
Is my formula for discounting the bond correct? If yes, then the two give different results?
1- is the annulized effective yield
2- is the annualized rate of return
I think when calculating bond values you are taking into consideration the reinvestment rate, which is coumpounded
When reporting on balance sheet you are simply amortizing (point to point), not compounding.
we need S2000 intervention to confirm.
The former’s an effective rate; the latter’s a nominal rate.
FRAs usually use LIBOR as the floating rate; LIBOR is a nominal rate.
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