Learning Module 7 Yield and Yield Spread Measures for Fixed-Rate Bonds

A bond pays semiannual coupons and has a stated annual yield-to-maturity (YTM) of 4.00% on a semiannual bond basis. What is the periodic yield per coupon period used in discounting cash flows?

You observe a five-year zero-coupon bond priced at 80.00 per 100 par. Which of the following annual yields (effective annual rate) is closest to the bond's YTM assuming annual compounding?

Convert an annual yield of 3.582% compounded semiannually to an annual yield compounded monthly (equivalent annual nominal APR with monthly compounding). Which is closest?

A 3-year strip (zero-coupon) government bond has a price of 69.43 per 100 par. Using annual compounding, what is the effective annual yield-to-maturity (approx)?

Which day-count convention assumes 30 days per month and 360 days per year and is commonly used for corporate bond accrued interest calculations?

A corporate bond with a 30/360 yield of 3.200% per annum is restated to an actual/actual government-equivalent yield. Which formula approximates this conversion?

Which yield measure is defined as a bond's annual coupon divided by its flat (clean) price?

A callable bond has scheduled call dates in years 3, 4, and 5 with corresponding call prices. Which yield measure gives the most conservative (lowest) yield an investor might receive assuming the issuer exercises optimally from the issuer's perspective?

A bond was issued at par with a quoted margin of 150 bps over a 3-month reference rate. Immediately trading indicates a required (discount) margin of 165 bps at the next reset. How will the floater be priced at the upcoming reset date relative to par?

You have a three-year semiannual coupon bond trading at 104 per 100 par with coupon 5.00% (semiannual payments). Which spread is calculated as the bond yield minus an interpolated government benchmark yield of the same maturity?

If a bond's price is 100.191 and the appropriate semiannual discount rate is 1.9659% per half-year (annualized 3.9318%), which spreadsheet function could directly compute the bond's YTM if provided settlement, maturity, coupon, price, redemption, frequency, and basis?

In the module example, China issued a five-year zero-coupon eurobond priced at 100.763. Solving 100.763 = 100/(1 + r)^5 yields r closest to which annualized YTM (negative)?

Which money market quoting convention understates an investor's true rate of return because the discount rate uses FV in the denominator rather than PV?

A 90-day Treasury bill is quoted on a 360-day discount basis at 0.12%. The face value is 100. What is the price (PV) per 100 par?

Which spread is defined as a constant spread Z added to every spot (zero) rate such that the present value of bond cash flows discounted by (spot + Z) equals the bond price?

An analyst has yields for actively traded comparables at 2 and 5 years. To estimate a 3-year required yield for a similar credit, the analyst uses linear interpolation between the 2-year average yield 3.8035% and 5-year average yield 4.1885%. What 3-year yield does this produce (approx)?

Which spread compares a bond's yield-to-maturity to the standard interest rate swap rate in the same currency and tenor?

A callable note has price 106.50 and coupon 6.5% with semiannual payments. The first call is at 103.25 three years from settlement. Which yield concept requires solving PV = coupon annuity + call price discounted to the first call date?

Which of the following statements about Z-spread and OAS is correct?

You estimate the Z-spread by solving PV = Sum{PMT/(1 + z_t + Z)^t}. Which method is typically used in a spreadsheet to find Z?

A bond's yield-to-maturity is decomposed into a benchmark rate and a spread. Which is the primary purpose of decomposing yields this way?

Which spread would an issuer most likely use to estimate the relative cost of issuing a fixed-rate bond versus borrowing via bank loan priced off market reference rates?

A five-year bond has annual coupons of 4.5% and its estimated Z-spread over the government spot curve is 150 bps. If another similar-coupon five-year bond from same issuer has observed market YTM that implies a Z-spread of 200 bps, what does this suggest about the second bond relative to the first?

Which of the following is NOT a typical use of matrix pricing?

Which spreadsheet function cannot be used directly to calculate the price (flat/clean) of a coupon bond given settlement, maturity, coupon, yield, redemption, frequency, and basis?

A bond yields 2.707% and uses quarterly periodicity in its published yield. Convert this to a semiannual bond-equivalent yield (approx) so it can be compared to a semiannual bond yielding 2.78%. Use the periodicity conversion relation.

If a new corporate bond is quoted as 'mid-swaps + 30 bps', which spread measure does this describe?

Which of these is the proper meaning of the 'street convention' yield?

Which function should you use to compute the present value (price) of a sequence of fixed periodic coupon payments and a redemption value in a spreadsheet when you know yield per period, number of periods, coupon per period, and redemption?

A bond's YTM is 2.707% with annual compounding. The government benchmark yield for the same maturity is 1.904% (annual compounding). What is the G-spread in basis points?

True or False: The Z-spread and the G-spread are always equal for a given bond.

A two-year corporate bond pays annual coupons and is priced using an interpolated government yield of 1.10% at two years. The corporate bond’s YTM is 2.36%. What is the G-spread in bps?

Which of the following best describes matrix pricing interpolation steps used to price an illiquid bond?

An analyst observes four corporates: 3-year at 2.856% and 5-year at 3.449%. To estimate the 4-year yield, the analyst averages the 2-year weights equally to get 3.153%. Which spread is found by subtracting the government benchmark from this interpolated yield?

Which money market quoted basis is used for instruments like commercial paper and Treasury bills and involves quoting a discount off face value?

You want to compare a 90-day add-on quoted CD with a 90-day discount-quoted commercial paper. What conversion step is recommended to make them comparable on a common basis?

A government issues a zero-coupon bond priced at 103.72 for five years. What sign would you expect for the effective annual yield and what is a consequence for periodicity conversions?

Which spread is most directly used to measure an issuer's credit component relative to a government benchmark (i.e., compensation for credit, liquidity, tax)?

True or False: Matrix pricing always yields the exact market-traded price for an illiquid bond.

An analyst estimates a required 4-year yield for a credit by averaging yields on two similar 2-year bonds (3.80%) and two similar 5-year bonds (4.19%). Which interpolation technique was used in the example?

Which spreadsheet function converts a nominal APR with a given compounding frequency to the effective annual rate?

Which of the following is the best description of the interpolated spread used when no government benchmark bond of the same maturity exists?

A corporate bond is quoted at a price of 99.488 and coupon 4.625% annual. Using the YIELD function you compute original issue YTM of 4.657%. Which conversion would you perform to express this yield on a semiannual bond basis (if coupons were semiannual)?

Which spread measure uses a constant additive spread applied to each spot rate in the benchmark curve to equate PV of bond cash flows to the price, and is sometimes called the 'static spread'?

An analyst uses Bloomberg FIRV and sees an I-spread larger than the G-spread for a USD corporate bond. What does this imply about the relationship between Treasury yields and swap rates at that tenor?

Which of the following best describes an 'on-the-run' government security?

A five-year bond's Z-spread is 27 bps. If an analyst prices a comparable corporate bond using the same spot curve and adds 27 bps to each spot rate, what will the analyst obtain?

Which spread measure would you adjust to reflect the effect of an embedded call option in basis points when comparing callable and non-callable bonds?

An analyst wants to estimate the price of a 3-year 4.0% semiannual corporate bond using a 3-year interpolated yield of 3.9318% (annual). Which Excel function could be used directly to compute the clean price from these inputs if settlement and maturity dates are known?

When issuers price a new five-year bond and use matrix pricing to establish an appropriate yield spread, which of the following is a typical next step after estimating the implied benchmark (government or swap) rate for five years?