Assumptions Relating to the Evolution of Spot Rates
Recall from the first learning objective of this reading that the forward rate lies above the spot rate for an upward sloping spot curve. On the other hand, the forward rate in a downward sloping spot curve lies below the…
Bootstrapping Spot Rates
Bootstrapping spot rates is a forward substitution method that allows investors to determine zero-coupon rates using the par yield curve. The par curve shows the yields to maturity on government bonds with coupon payments, priced at par, over a range…
Spot Rates and Forward Rates
This reading will establish how interest rates and prices of bonds for different maturities are related. Spot Rates The zero-coupon bond (discount bond) is the basic debt security that pays one unit of currency, e.g., $1, at maturity. The price…
