Zero coupon yield: Difference between revisions
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imported>Doug Williamson (Note expressly that there is no intermediate interest.) |
imported>Doug Williamson (Typo correction. Amended 'rate' to 'yield'.) |
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The zero coupon | The zero coupon yield is also known as the Zero coupon rate, spot rate, or spot yield. | ||
Revision as of 22:14, 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.
(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.
