Zero coupon yield: Difference between revisions
From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson (Added additional links) |
imported>Doug Williamson (Added more yield curve links) |
||
| Line 30: | Line 30: | ||
== See also == | == See also == | ||
* [[Bootstrap]] | * [[Bootstrap]] | ||
* [[Forward yield]] | * [[Forward yield]] | ||
* [[Par yield]] | * [[Par yield]] | ||
* [[Spot rate]] | * [[Spot rate]] | ||
* [[Yield curve]] | * [[Yield curve]] | ||
* [[Zero]] | * [[Zero]] | ||
* [[Zero coupon bond]] | * [[Zero coupon bond]] | ||
* [[Flat yield curve]] | |||
* [[Rising yield curve]] | |||
* [[Falling yield curve]] | |||
* [[Positive yield curve]] | |||
* [[Negative yield curve]] | |||
Revision as of 10:34, 13 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.
(No intermediate interest is payable.)
An application of zero coupon yields is the pricing of zero coupon bonds.
The zero coupon yield is also known as the Zero coupon rate, spot rate, or spot yield.
Conversion
If we know the zero coupon yield, we can calculate both the par yield and the forward yield for the same maturities and risk class.
