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115 CFA
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115.070.03.07 Fixed Income - Reading 44 - 7. The Maturity Structure of Interest Rates

# 7. The Maturity Structure of Interest Rates

## j. define forward rates and calculate spot rates from forward rates, forward rates from spot rates, and the price of a bond using forward rates;

What is a spot rate and what is a spot curve used for?
A spot rate is the yield on a zero-coupon bond. A series of spot rates (spot curve) can be used to discount the cash flows of a bond.

In regards to deriving default-free spot rates, what is bootstrapping?
Bootstrapping: the value of a Treasury coupon security should be equal to the value of the package of zero-coupon Treasury securities that duplicate the coupon bond's cash flows.

What is a par curve?
A par curve is a sequence of yields-to-maturity in which each bond is priced at par value.

What is a forward rate?
A forward rate refers to the interest rate on a loan beginning some time in the future.

What is a forward curve?
A forward curve is a series of forward rates, each with the same time frame.

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