Fixed income

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Joined: Sat Apr 22, 2017 11:51 am

Fixed income

Postby danish.hassan7 » Thu Jun 15, 2017 7:12 am

An analyst wants to estimate the yield to maturity on a non-traded 4-year, annual pay bond rated A. Among actively traded bonds with the same rating, 3-year bonds are yielding 3.2% and 6-year bonds are yielding 5.0%. Using matrix pricing the analyst should estimate a YTM for the non-traded bond that is closest to:
Choose one answer.
a. 3.8%. Correct
b. 3.6%. Incorrect
c. 4.1%. Incorrect
The correct answer is A
3.2% + [(4 - 3) / (6 - 3)] × (5.0% - 3.2%) = 3.8%


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