Spot Rate
The yield to maturity of a zero-coupon bond, usually a Treasury bond, which is used as a benchmark for other bond yields and valuations. Because a zero-coupon bond has no coupon payments, there is no reinvestment risk and, therefore, the precise yield to maturity of the bond can be known. Investopedia Says:
The construction of a spot rate Treasury yield curve is used to demonstrate the arbitrage-free relationship between spot rates and forward rates known as the term structure of interest rates. Spot rates are also used in the calculation of a zero-volatility spread (Z-spread) used to price certain fixed-income securities. Related Terms:
Present Value - PV
Term Structure Of Interest Rates
Treasury Bond - T-Bond
Treasury STRIPS
Yield Curve
Zero-Volatility Spread - Z-spread |