Confused about spot rates

CFA Level II
#1

Hi, Please answer if the following statements that I understood so far are correct or not:

  • So a spot rate is YTM of a zero-coupon bond, but when we have coupon paying bonds then YTM of a coupon bond with one year maturity is also the spot rate for that bond.
  • Furthermore, If we receive a coupon during the year then its YTM is not its spot rate but when we receive the coupon at the end of the year then its YTM is also its spot rate.
  • Also is the par rate =coupon rate=YTM=spot rate for a coupon paying bond with suppose one year to maturity and the coupon is to be paid at the end.
  • What if the coupon is to be paid during the one-year tenor then will the par rate be equal to all those rates also?
#2

I just need a yes or no answer for each point with an explanation for why is it No. Anyone?

#3

True.

Only if the bond pays coupons annually. If it pays semiannually, then its YTM will likely be different from the 1-year spot rate.

I’m not certain I follow what you’re saying, but I think it’s true. If there’s only one cash flow remaining, then the YTM will be the spot rate for the time to maturity.

Yes.

Only if the yield curve is flat. Otherwise, the spot rate for the time to maturity may not equal the YTM of the bond.

#4

thanks :slightly_smiling_face:

#5

My pleasure.