CFA Practice Question
Assume that the spot rate curve is flat. Calculate the G spread on a five-year, 6.5% bond priced at $96.91 when the spot rates are 6%.
A. 75 basis points
B. 125 basis points
C. 207 basis points
Explanation: Because the spot rates are constant, the G spread simply equals YTM - spot = 7.25 - 6.00 = 125 basis points.
User Contributed Comments 7
| User | Comment |
|---|---|
| Will1868 | Doesn't the YTM in this answer neglect the final cash flow of Par+final PMT = 1065? n=5, pmt= 65, pv=-969.1, fv = 1065 solve i=8.38% am I wrong? |
| johnsk | yes it includes the final value otherwise the YTM would be negative. you should not include the final coupon in your future value though as it's been included already. |
| billou | calculate the nominal spread ! |
| awlhoaln | how com not semiannual ? n=10 |
| volkovv | should be semiannual, but that doesn't change the answer: n=10, pmt=32.5, pv=-969.1, fv=1000, solve i=3.624 * 2 = 7.248% 7.25 - 6.00 = 125 bp |
| clarelau | Acturally we have 2 ways to calculate the yield 1. n=10,pmt=3.25 pv=-96.9, fv=100 solve i =3.624*2=7.248 2. CF0=-96.9 C01=3.25 F01=9 C02=103.25 F02=1 IRR Calculate=3.624*2=7.248 For the first one, the last coupon payment is already included in the pmt...so FV=100 instead of 103.25 |
| Mhmdjamal | for calculating interst rate by BA11 if i make FV instead of PV with negative sign, i will get different result is it normal or i have to reset my calc?? |