Bootstrapping entails forward substitution, however, using par yields to solve for zero-coupon rates one by one, in order from earliest to latest maturities
Can someone explain the meaning of earliest to latest maturities
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The par rate refer to yield to maturity on coupon bearing government bonds, which is priced at par over a range of maturity. It is used to construct a zero coupon yield curve through a process called bootstrapping.
Suppose there is 3 par rate is given
C1= 6% C2= 7% & C3 = 8%
So we will find spot rate using par rate the first spot rate is 6%, then we will find the second spot rate which is 7.035% & so on.
So we will find spot rate from par rate by earliest to latest maturity