Question
How does a forward rate f(T∗,T) differ from a spot rate?
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Answer
It applies to a loan starting in the future, not today.
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Question
What makes spot rates the "pure" rates for each maturity?
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Answer
They involve single payments, so no coupon reinvestment assumption is needed.
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Question
Why are spot rates used for no-arbitrage pricing of a coupon bond instead of one yield for all cash flows?
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Answer
Each cash flow is discounted at its own maturity-specific rate.
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Question
What does a par rate represent for a given maturity?
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Answer
The coupon rate that makes a hypothetical bond price at par.
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