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how do i compute the spot rate if I have the discount factor rate ?

how do i compute the spot rate if I have the discount factor rate ?

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Answer #1

We can use discount factor rates to get spot rates. This is also used when we do yiwld curve analysis. A discount factor is the present value of a unit currency in the future. For example, if the price of a one year zero coupon bond is 96.88 with a par value of 100, then discount factor is 0.9688.

The information contained by spot rates and discount factors is same.

A t-period spot rate is the yield to maturity of a zero coupon bond maturing in t years.

Discount factor is P(T)

Spot rate is r(T)

For example, if the three spot rate is 9% then 3 yearyear disc factor will be -

1/(1+0.09)^3= 0.772

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