When using matrix pricing, how is the yield for a specific maturity usually derived if an exact match is not available?
Explanation
Linear interpolation estimates a value between two known points based on the proportional distance.
Other questions
What does the Yield to Maturity (YTM) of a fixed-rate bond represent?
Which of the following assumptions is required for an investor to earn the calculated Yield to Maturity (YTM)?
What is the relationship between a bond's price and its Yield to Maturity (YTM)?
The full price of a bond is calculated as:
Why are bond prices typically quoted as the 'flat price' rather than the 'full price'?
What is 'Matrix Pricing' primarily used for?
What is the 'periodicity' of a bond yield?
A bond yield of 4 percent quoted on a semiannual bond basis represents an annual yield of:
Which day count convention is typically used for corporate bonds?
What is the 'Government Equivalent Yield' (GEY) used for?
What is the 'Current Yield' of a bond?
Which yield measure is considered a crude measure because it ignores the time value of money and capital gains?
The yield-to-worst is defined as:
What is an 'Option-Adjusted Yield'?
If a bond has a 'Quoted Margin' greater than its 'Required Margin', the bond will trade at:
What is a 'G-Spread'?
Which spread measure is calculated over a swap rate benchmark?
The 'Z-Spread' (Zero-volatility spread) is the constant spread added to:
How is the Option-Adjusted Spread (OAS) calculated in relation to the Z-Spread?
Which of the following is true regarding money market yields compared to bond yields?
A Treasury Bill is quoted on a 'discount rate basis'. What is the denominator in the discount rate calculation?
Which instrument is typically quoted on an 'add-on rate basis'?
What is the convexity effect in bond pricing?
If a bond is trading at a discount, what is the relationship between its price and par value over time (assuming constant YTM)?
Calculate the price of a 10 percent annual coupon bond with 3 years to maturity and a YTM of 12 percent (Face Value = 100).
A zero-coupon bond is issued at 90 with a maturity of 4 years. What is the approximate annual YTM?
Which bond has the greatest sensitivity to interest rate changes (highest duration)?
If a bond's price is 980 and the face value is 1000, it is trading at:
In a 30/360 day count convention, how many days are there between February 1 and March 1?
A corporate bond yields 6 percent on a 30/360 basis. What is its Government Equivalent Yield (GEY) if the conversion factor is 365/360?
Calculate the value of a bond with the following spot rates: Year 1: 5 percent, Year 2: 6 percent. The bond pays a 5 percent annual coupon and matures in 2 years (Face Value 100).
What is the 'Par Rate'?
Which of the following describes an 'upward sloping' yield curve?
A '3y1y' forward rate refers to:
What is 'reinvestment risk'?
For a buy-and-hold investor, which risk is most relevant?
If a bond's 'Macaulay Duration' equals the investor's investment horizon, what is the 'Duration Gap'?
What does a negative Duration Gap (Horizon > Macaulay Duration) imply about the dominant risk?
Which of the following converts a 30-day money market yield of 0.5 percent to a bond equivalent yield (BEY)?
For a 'Floating-Rate Note' (FRN), if the credit quality of the issuer declines, what happens to the 'Required Margin'?
The 'Discount Margin' on a floating-rate note is essentially:
Which calculation gives the 'Add-on Rate' (AOR) for a money market instrument?
If a 90-day commercial paper is quoted at a discount rate of 2 percent (360-day year), the approximate add-on rate (365-day year) is:
A 'step-up' coupon bond is one where:
Which convention assumes a year has 365 days?
Calculate the accrued interest for a bond with a 6 percent annual coupon (30/360) if 30 days have passed since the last coupon payment (Face Value 100).
If the term structure of interest rates is flat at 5 percent, what is the value of a 3-year 5 percent annual coupon bond?
Which yield curve shape assumes that short-term rates are higher than long-term rates?
Which of the following bond types typically has the highest 'Periodicity' in its yield quotation?