CFA Level I · CFA Level I Exam · The Term Structure of Interest Rates: Spot, Par, and Forward Curves
In the context of the term structure of interest rates, a par rate for a given maturity is best described as the:
A par rate is the coupon rate at which a bond of a given maturity is priced at its face value. Its yield to maturity then equals its coupon rate. Spot rates relate to zero-coupon bonds and forward rates to future loan periods.
- Ayield on a zero-coupon bond of that maturity
- Brate agreed today for a loan starting in the future
- Ccoupon rate at which a bond of that maturity prices at its face valueCorrect
Explanation
A par rate is the yield to maturity, equal to the coupon rate, at which a coupon bond is priced at par. The yield on a zero-coupon bond is a spot rate, and a rate for a future loan is a forward rate. Both of those describe different curves.
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