- CFA Exams
- 2024 Level I
- Topic 7. Fixed Income
- Learning Module 6. Fixed-Income Bond Valuation: Prices and Yields
- Subject 4. Matrix Pricing
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Subject 4. Matrix Pricing PDF Download
Most bonds don't trade on a daily basis. Usually only the most recent large issues have the greatest liquidity and pricing ability. There is rarely a consensus on the exact value of an individual bond.
Matrix pricing is the practice of interpolating among values for similar instruments arranged in a matrix format.
It attempts to categorize bonds with similar features (e.g., type of issuer, credit rating, coupon, maturity, etc.) and apply a general yield level to the entire category of bonds. Typically a required yield over the benchmark rate is estimated.
It then calculates the approximate price of a specific bond within a category using the derived yield level.
It represents an educated guess and not an actual offer or trade price.
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