Glossary: FI Module 07 — Yield and Spread Measures (Fixed-Rate)
| Term | Definition |
|---|---|
| Effective annual rate (EAR) | The annualized rate accounting for compounding: |
| Annual percentage rate (APR) | The stated annual interest rate without compounding adjustment (periodicity × periodic rate) |
| Periodicity | The number of compounding periods per year (1 = annual, 2 = semi-annual, 4 = quarterly) |
| Street convention | Yield calculated assuming scheduled coupon dates with no adjustment for weekends or holidays |
| True yield | Yield adjusted for actual payment dates (accounts for weekends/holidays); ≤ street convention |
| Simple yield | Approximation: (Annual coupon + straight-line amortization of gain/loss) / Price |
| Government equivalent yield | A corporate bond yield restated on the same day-count basis as government bonds for comparison |
| G-spread | Yield spread over an interpolated government bond yield of the same maturity |
| I-spread | Yield spread over the interpolated swap rate of the same maturity |
| Z-spread (zero-volatility spread) | The constant spread over the spot curve that equates PV of cash flows to the bond’s market price |
| OAS (option-adjusted spread) | Z-spread minus the value of embedded options; represents credit + liquidity spread only |
| Yield to call (YTC) | YTM calculated using the call date and call price instead of maturity and par |
| Yield to worst (YTW) | The lowest of YTM and all possible YTCs; conservative callable bond yield measure |
| Benchmark rate | The reference yield (government bond or swap rate) used to calculate spreads |
| Risk premium | The additional yield above the risk-free rate that compensates for various risks |
See also: Yield Measures, Yield Spreads