The Finance package also provides for creating and manipulating term structures of interest rates as well as volatility term structures. Here is the list of relevant commands:

 The DiscountFactor command returns the discount factor corresponding to the specified interest rate, compounding type, and frequency.

The CompoundFactor command returns the compound factor corresponding to the specified interest rate, compounding type, and frequency.

The EquivalentRate command generates a desired interest rate that is equivalent to the given interest rate.

The ImpliedRate command returns the implied rate for the given compound factor.

The ZeroRate (short for zero-coupon rate) command computes the rate of interest earned on an investment that starts today and ends at a future certain day (in years).

Use the input interest rates at different maturity times to construct a piecewise function.

First consider the case of continuously compounded interest.

Next consider the case of simply compounded interest.

Use the input interest rates at different maturity times to construct a piecewise function.

You can see that the simple rates are a little larger than corresponding continuous compounding rates.

The forward rate is defined as the rate of interest implied by current zero rates for periods of time in the future.

Use the input interest rates at different maturity times to construct a piecewise function.

Set compounding = Continuous so that the input interest rates are continuous compounding.

Construct a yield term structure based on a piecewise interpolation of the given zero rates.

You will get the same results with the function CurveFitting:-Spline

Construct yield term structures based on piecewise interpolation of the given discount rates and forward rates.

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