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**CFA Practice Question**

A 7.5% semiannual coupon bond with 12 years to maturity is being quoted at an ask yield of 7.67% and bid yield of 7.69%. What is the bid-ask spread on this bond's price, assuming the bond has a face value of $1,000?

A. 1.47

B. 1.52

C. 1.54

**Explanation:**We need to compute the bond prices at the two yields: ask and bid. For the bid price, we use the higher yield, as it would give us the lower price. Using a financial calculator, FV = 1,000; PMT = 37.50; I/Y = 3.845; N = 24; CPT PV = 985.28.

For the ask price, we use the lower yield: 7.67%. FV = 1,000; PMT = 37.50; I/Y = 3.835; N = 24; CPT PV = 986.82.

Bid - ask spread = 986.82 - 985.28 = 1.54

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**User Contributed Comments**
9

User |
Comment |
---|---|

Janey |
You will need to go to at least 4 decimal places with this one. using only 2 I get an answer of 1.53 which is in between B and C. |

julescruis |
thank you janey, i went crazy on this one |

dany1978 |
why is PMT equals to 37.50 ? |

achoi0 |
1000x(.075/2)=37.50 semi-annual coupon |

ninad123 |
No where in Schweser I encountered this one.. Good add to knowledge. |

Cfrey |
I think you can also find PVBP and multiply by 2 if that is easier for you |

thebkr7 |
I read all of Schweser twice and A.N. is by far the more comprehensive one... and +$300 cheaper! |

gyee2012 |
(.0767+.0769) * 10 = 1.536 *Saw spread = difference Heuristic calc... |

ctschro |
gyee2012 - nice |