Spot rate
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
The yield on a zero-coupon bond of a given maturity.
Spot rate in plain English
A spot rate is the plain interest rate for lending money over one specific stretch of time, with a single payoff at the very end and nothing in between. That's what "zero-coupon bond" means — you hand over cash today, get no periodic payments, and receive one lump sum when it matures, so its yield cleanly reveals the going rate for that exact length of loan. For example, the 3-year spot rate tells you the pure annual return for tying up money for exactly three years. It's like the price tag for renting out your dollars for one fixed period — different lengths (2 years, 5 years, 10 years) can each carry their own spot rate.
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