Zero coupon yield definition
Since this yield curve represents bonds of identical credit risks (basically riskfree), the zero coupon curve, the discount curve, the forward curve, and the par yield curve are just different representations of the same thing and can be translated very easily from each other. For simplicity, I'll assume annual compounding:How can the answer be improved? zero coupon yield definition
Zero coupon bond (also called deepdiscount bond or pure discount bond) is a bond that pays no coupon payments over its life. It is issued at a significant discount to its face value and its total return results from the difference between its
1. The above yields are based upon average bids quoted by primary dealers, after 15 data cutoff from top and bottom when ranked by value. Some zero coupon bonds are inflation indexed, so the amount of money that will be paid to the bond holder is calculated to have a set amount of purchasing power rather than a set amount of money, but the majority of zero coupon bonds pay a set amount of money known as the face value of the bond.zero coupon yield definition A zerocoupon bond (also discount bond or deep discount bond) is a bond where the face value is repaid at the time of maturity. Note that this definition assumes a positive time value of money. It does not make periodic interest payments, or have socalled coupons , hence the term zerocoupon bond.
Zero coupon bonds are an alternative investment type compared to traditional bonds. In this lesson, we will explore what makes these investments unique and how investors can calculate a purchase price or yield of these bonds. zero coupon yield definition Zero coupon yield : 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. Also known as the Zero coupon rate, spot rate, or spot yield. Sometimes zerocoupon bonds are issued as such; other times they are bonds stripped of their coupons by a financial institution and resold as zerocoupon bonds. A zerocoupon bond is less formally known as a zero. The yearly 'total return' from the bond is a) the sum of the coupon's yield plus b) the capital gain from the changing valuation as it slides down the yield curve and c) any capital gain or loss from changing interest rates at that point in the yield curve. A zerocoupon bond is a debt security that doesn't pay interest but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.Rating: 4.70 / Views: 247