Understanding Spot Rates: Truths Behind Interest Rates and Yield Curves

Let's evaluate each statement: 1. "The interest rates on the yield curves are often called spot rates." - This statement is true. The yield curve represents the relationship between the spot rates and the various maturities. Each point on the yield curve corresponds to the spot rate for that particular maturity. 2. "The spot rates do not ignore the term structure of interest rates." - This statement is true. Spot rates inherently consider the term structure of interest rates because they represent the yields on zero-coupon bonds, which are influenced by the expectations of future interest rates over different maturities. 3. "The n-year spot rate can be computed in terms of n one-year forward rates." - This statement is true. The n-year spot rate can often be derived from the sequence of one-year forward rates. There is a mathematical relationship where the spot rate for a longer maturity can be expressed in terms of the spot rates for shorter maturities and the intermediate forward rates. Therefore, all the statements about spot rates are true.