Seeing is believing!
Before you order, simply sign up for a free user account and in seconds you'll be experiencing the best in CFA exam preparation.
Basic Question 4 of 19
Which of the following is an advantage of the arbitrage-free valuation approach to valuing fixed income securities, relative to the traditional valuation approach?
B. The valuation of individual cash flows based on specific spot rates
C. The specification of a single spot rate curve (which is used to derive the current value of the bond)
D. The automatic adjustment for changes in cash flows due to embedded options
A. The adjustment for semi-annual compounding of interest
B. The valuation of individual cash flows based on specific spot rates
C. The specification of a single spot rate curve (which is used to derive the current value of the bond)
D. The automatic adjustment for changes in cash flows due to embedded options
User Contributed Comments 3
| User | Comment |
|---|---|
| Victorialy | Arbitrage free valuation applies spot rates to CF of bond |
| maryprz14 | But this is a characteristic or feature of arbitrage-free, not an advantage! |
| khalifa92 | the price calculated from spot rates and yield to maturity don't match there will be an arbitrage opportunity. |
Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh
Learning Outcome Statements
identify the relationships among a bond's price, coupon rate, maturity, and yield-to-maturity
CFA® 2024 Level I Curriculum, Volume 4, Module 6.