Question

How did you calculate spot rates? I know that spot rate is the sum of yield...

How did you calculate spot rates? I know that spot rate is the sum of yield curve and rating, but I have to gues ten year period, from now on or I should use the historic data from 2010 to 2020

Homework Answers

Answer #1

Spot rate is the rate rate at which immediate transaction happens. This is influenced by the expectations of future cash-flows or returns and their movements. The spot rate is calculated by finding the discount rate that makes the present value (PV) of a zero-coupon bond equal to its price over its maturity and hence are estimated basis future interest rate assumptions.

Thus, to calculate spot rate, you have to use the estimates of future period (or say next ten years) and not basis historics data of last 10 years.

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