Unit 2 · Level 3 · Rates → assets
Unit review: rate gravity
Rates are the discount machine: higher rates shrink the present value of future cash, and the more distant the cash, the harder the hit. 2022 was the live demo: stocks, bonds and crypto down together. Duration hides everywhere, from growth stocks to tokens. And markets trade rate EXPECTATIONS, front-running central banks by months.
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What you get asked
Review: order a full rate cycle as markets trade it
The whole unit in five steps: discounting sets the damage, duration sets who bleeds most, and expectations set the timing.
Which asset should be MOST sensitive to a surprise rate rise?
Its entire value sits a decade out, so every extra point of discount rate compounds against it. Longest duration, biggest bruise.
In 2022 the classic 60/40 portfolio had one of its worst years in a ___.
Both halves fell at once: stocks about 19%, bonds roughly 13%. The cushion and the mattress failed together.
Markets often move BEFORE central banks act because:
Prices are forecasts. By the time the decision lands, the expected part is already in the price. Only the surprise is left.
The single mechanism linking this whole unit:
One machine explains 2022, duration, and the pivot trade alike: change the discount rate and you change the present value of everything. 🐜
The rest of this unit
Interest rates are financial gravity. Trace how one number reaches every asset you own.