Coupon rate definition

Of course, interest rates are not constant but Equation (3.1) is valuable as it is used later in constructing a model. By using Equation (3.1), we are able to produce a yield curve, given a set of zero-coupon bond prices. For modelling purposes, we require a definition of the short rate, or the current interest rate for borrowing a sum of money that is paid back a very short period later (in fact, almost instantaneously). This is the rate payable at time t for repayment at time t+M where Af is an incremental passage of time. This is given by... 

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