Calculation of Interest Rates from the Yield Curve Created

Once the yield curve has been created, it is used to calculate the interest rates on the basis of the interest rate conditions set in the yield curve. The interest rate R is quoted at par if the condition represented by the equation illustrated in the figure below applies for R:

The quotients q_i from day difference and days in the year and the payment dates i result from the interest rate conditions. To calculate R, the system resolves the equation as depicted in the figure below:

The system either calculates the discount factors d_i when it creates the yield curve or they are the result of the interpolation with continuous compounding zero rates.

The last, and not the first, interest period must be shortened if the term is not an integer multiple of the payment frequency.

Calculate zero interest rates with a term of more than one year

If a zero interest rate with a term of more than one year is to be calculated, instead of the procedure above the system uses the equation depicted in the figure below:

In other words, the system assumes a compounding frequency of one year for zero interest rates with a term of more than one year.