CFA Practice Question

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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?

A. 11 basis points
B. 100 basis points
C. 225 basis points
Correct Answer: C

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 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
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