Zero coupon yield: Difference between revisions

From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson
(Link with Par yield page and add example.)
imported>Doug Williamson
(Add 'on these terms'.)
Line 8: Line 8:
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.


See also