Zero curve (zero-coupon curve)
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
The set of spot rates across maturities; the foundational curve of fixed income valuation.
Zero curve (zero-coupon curve) in plain English
When you lend money, the interest rate you deserve depends on how long until you're paid back — a 1-year loan and a 10-year loan aren't priced the same. The zero curve is simply the full list of the "pure" interest rates for each length of time, where "pure" (a spot rate) means the rate on a single lump sum repaid all at once with no payments in between. It's called foundational because almost every other bond price is built by discounting future cash flows with these rates. Picture a menu showing today's honest rate for locking money away 1 year, 2 years, 5 years, and so on — that whole menu is the zero curve.
Also called: zero-coupon curve
Learn these first
Related Principles of Finance terms
Principles of Finance practice questions · Principles of Finance flashcards · Principles of Finance study guide