CFA level 1 : fixed Income : pg 407 of CFA text book

mehak.officiallink
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CFA level 1 : fixed Income : pg 407 of CFA text book

Postby mehak.officiallink » Sat Aug 23, 2014 7:47 pm

Why is using the spot rate better discount rate than Yield to Maturity in calculating the price of the bond ? "Spot rates are yield to maturity on zero coupon bonds maturing at the date of each cash flow" please explain this line as well as in why are we referring to the zero coupon bonds ?

edupristine
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CFA level 1 : fixed Income : pg 407 of CFA text book

Postby edupristine » Wed Aug 27, 2014 1:27 pm

In bond concepts we generally assumed that the coupon were reinvested at coupon rate,But some securities can have a varying coupon rates so spot rate curve will give you better measure.
Though spot rate and YTM will same for zero coupon bonds.


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