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Find the operation that changed the model
Suppose an original schedule pays 40 at year one and 80 at year three. Its spots are 4% and 6%. Replacing them with their simple average of 5% changes both discount factors. It also ignores the different receipt sizes and horizons.
Calculate the two prices
Dated value is 40/1.04 + 80/1.06³ = 105.631081. The averaged-rate calculation is 40/1.05 + 80/1.05³ = 107.202246. The latter is a flat 5% curve valuation of the same schedule.
| Method | Rate treatment | Value |
|---|---|---|
| Dated spots | 4% at year one; 6% at year three | 105.631081 |
| Simple rate average | 5% at both dates | 107.202246 |
Do not confuse an average with a fitted yield
A single YTM could be solved to match the original price for that schedule. It is obtained from the price equation, rather than an unweighted mean of the spot quotes. A different schedule can require a different fitted rate.
Restore the payment map
Keep each horizon attached to its own factor. If a simplified flat-rate scenario is intended, name it as a scenario and report the change. Do not claim it is an equivalent compression merely because its percentage lies between the endpoint spots.