Spot rates on bonds someone, several

mouse123

Can someone elaborate on this? They come up several times and I cant conceptually picture how they work..


TIA

bapswarrior

If I recall correctly, the subject refers to synthetically treating each coupon payment as though it were a zero coupon bond. Normally, bonds pay a sequence of interest payments and a lump sum at maturity. The context here is to look at the payment stream as a series of standalone bonds.

I think you need to understand this concept pretty well, because later sections of fixed income build upon it.

- Robert

mnieman

A spot rate is a point (yield) on the yield curve...

Two year spot rate on the treasury yield curve is the yield that the market uses to discount two-year risk free cash flows.

ftwcfa

McLeod81 Wrote:
-------------------------------------------------------
> A spot rate is a point (yield) on the yield
> curve...
>
> Two year spot rate on the treasury yield curve is
> the yield that the market uses to discount
> two-year risk free cash flows.


good application - thanks