Par yield (or par rate) denotes in finance, the coupon rate for which the price of a bond is equal to its nominal value (or par value). It is used in the design of fixed interest securities and in constructing interest rate swaps.
The par yield c for a n-year maturity fixed bond satisfies the following equation
This can be more succinctly expressed with the prices of zero coupon bonds:
Here denotes the yield (on annual interest rate basis) of an -year zero-coupon bond, and denotes the price of an -year ZCB.
- G. Questa: Fixed income analysis for the global financial market Chapter 7 Section 4;
- Martellini, Priaulet, Priaulet: Fixed-income securities, Wiley Finance, 2003