please refer to Dec 2011 Question 3 "LEVANTE Co"
https://www.accaglobal.com/content/dam/acca/global/pdf/p4_2011_dec_q.pdf
We are required to calculate the Market Value of the bond (which will be the value at which it will be issued to investors)
The bond is a 5% coupon, par value $100, 5 yr, Rating A
We are given a credit spreads table. Its simply a matter of choosing the right credit spread and discounting the bonds cash flows to arrive at market value.
PROBLEM
instead of choosing the 5 yr credit spread for A rating for all the years (112 bp + 5% = 6.12%) the answer uses a SEPERATE discount rate for each years cash flow.
yr1 . 3·85% .$5
yr2 . 4·46% .$5
yr3 . 5·07% . $5
yr4 . 5·80% . $5
yr5 . 6·12% . $105
https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/p4_2011_dec_a.pdf
Now refer to question "Do It Yourself". In this question they use a SINGLE discount rate chosen from the credit spread table for each years payment. I have seen in other questions as well that the SINGLE discount rate is used for all years. So if a bond is a 10 yr bond, the 10 yr yield spread is used for all the years.
Which method is correct ?
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