- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 7. Yield and Yield Spread Measures for Fixed-Rate Bonds
- Subject 3. Yield Spread Measures for Fixed-Rate Bonds and Matrix Pricing
CFA Practice Question
What is the G spread between a 20-year, 9% corporate AA bond that is priced at $87.56, and a 20-year, 8% Treasury bond priced at $97.57?
B. 100 basis points
C. 225 basis points
A. 11 basis points
B. 100 basis points
C. 225 basis points
Correct Answer: C
Corp. N = 40, PV = -87.56, PMT =4.5, FV = 100, I/Y=?=5.25, YTM = 5.25(2) = 10.5%
Treasury: N =40, PV = -97.57, PMT = 4, FV =100, I/Y=?=4.125, YTM = 4.125(2) = 8.25
G spread is 10.5 - 8.25 = 2.25 or 225 basis points
Find YTM of both bonds.
Corp. N = 40, PV = -87.56, PMT =4.5, FV = 100, I/Y=?=5.25, YTM = 5.25(2) = 10.5%
Treasury: N =40, PV = -97.57, PMT = 4, FV =100, I/Y=?=4.125, YTM = 4.125(2) = 8.25
G spread is 10.5 - 8.25 = 2.25 or 225 basis points
User Contributed Comments 5
| User | Comment |
|---|---|
| gill15 | I cant believe after all the bond questions we did i chose a 100 basis points... |
| ldfrench | Gotta remember to take it from semiannual to annual by multiplying it by 2. Always a common mistake |
| Fabulous1 | As the difference between the basis point options is this big you can just use the annual values and still get around 225 bp |
| brunoma94 | Its not the difference between coupon rate but the difference between YTM |
| thevinu | Annually compounded difference gets you around 226.1 but its close enough. For precise answer it's better to go with the default semi annual calculations. |