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The Eurodollar Futures and Options Handbook by Galen Burghardt

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CHAPTER 4Forward and Futures Interest Rates

People who work with interest rates encounter three fundamental kinds of yield curves. One is a zero-coupon curve that represents the yields used to value single cash flows, which are known as zero-coupon bonds. The second is a coupon yield curve that represents the yields—typically internal rates of return—that are used to value bonds that carry periodic coupons in addition to a final principal amount. The third is a forward rate curve that can be used to compare the value of cash between any two dates. Of the three, the forward rate is the most basic and is the curve from which both the zero-coupon and coupon yield curves can be derived. The forward rate curve contains the building blocks that financial ...

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