Question

A spot rate (of a certain horizon) is the YTM of a zero-coupon Treasury security (of...

A spot rate (of a certain horizon) is the YTM of a zero-coupon Treasury security (of matching maturity).

True

False

Yield on a 3-year Treasury note can be treated as the 3-year spot rate.

True

False

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Answer #1

Spot is an annualized yield to maturity of a zero-coupon bond. The spot rate for a particular term period will be equal to the yield to maturity of a zero-coupon bond when the maturity period is same in both cases.

Hence, the statement is true.

Treasury notes are issued by the government with longer maturity periods and pays interest on semi-annual basis. The yield on treasury note can be treated as spot rate if the maturity period is same.

Therefore, the statement is true.

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