Zero coupon yield: Difference between revisions
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imported>Doug Williamson (Link with Par yield page and add example.) |
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The zero coupon yield for the maturity 0-3 periods is 2% per period. | The zero coupon yield for the maturity 0-3 periods is 2% per period. | ||
This means that a deposit of £1,000,000 at Time 0 periods would return: | This means that a deposit of £1,000,000 at Time 0 periods on these terms would return: | ||
£1,000,000 x 1.02<sup>3</sup> | £1,000,000 x 1.02<sup>3</sup> | ||
Revision as of 12:38, 11 November 2015
The rate of return on an investment today, for a single cashflow at maturity of the instrument.
Equal to the current market rate of return on zero coupon bonds of the same maturity.
Example
The zero coupon yield for the maturity 0-3 periods is 2% per period.
This means that a deposit of £1,000,000 at Time 0 periods on these terms would return:
£1,000,000 x 1.023
= £1,061,208 at Time 3 periods.
An application of zero coupon yields is the pricing of zero coupon bonds.
The zero coupon rate is also known as the Zero coupon rate, spot rate, or spot yield.
