- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 44. Introduction to Fixed-Income Valuation
- Subject 8. Yield Spreads

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**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

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**User Contributed Comments**
4

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 |