I've been working on something I didn't understand for two whole days and today I finally realised the way they wanted me to look at it and it all came together.

What I've been trying to do, is to bootstrap a yield curve given only swap rates in order to price a bond. Of course, it doesn't help that while all the notes supplied tell you how to bootstrap a yield curve using swap rates, and how to then get the zero coupon rates and forward rates from the earlier processes (which by the way involve tons of steps all building on each other - God bless whoever invented excel), none of them tell me what pricing a bond has anything to do with anything! So for the last two days I've been playing with numbers (doing infinite amounts of changing formulas minutely to try and obtain some kindo f an answer, in between searching desperately online for some source that would brilliantly link the two together), not really getting anywere.

Sometime this afternoon, I finally realised that if a bond can be viewed as a series of fixed flows of payments, then the alternative you can do with the same amount of money would be to put it into floating rates. In which case, it's actually like a normal interest rate swap and thus can be priced as one, balancing the present values of both payments in order to arrive at the value of the swap (price of the bond).

My question is this: Why didn't anyone just point that out to me in the first place? Especially since it wasn't a concept or formula that i lacked but a point of view.

And for everybody else who doesn't live and breathe finance and econ as I do at this point of time, erm... essentially it's like when you first learn math or physics and the teachers tell you to memorise the formulas in order to get the answer but then you get your midterm and you actually have to somehow twist your formulaes in order to apply them to some foreign unheard of concept. (This is especially so if you've ever been in GEP and taken the midterms which I swear the teachers get a kick out of setting.)... except, I have no teacher only a bunch of formulas so no concept. I suppose I should be grateful for this agony so that this firmly etches itself onto my memory.

And yes, I'm probably some kind of math geek deep inside my arty farty outer shell. I can't imagine why else I can get such a kick out of having a series of equations click together presenting me with the answer to my complex question. I didn't even mind the lots of minor keying and tweaking that had to take place... put it down to delayed even greater gratification.

Erm... everyone from my old arts class, pretend you never heard me say that.