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Hi SIr,
1)Perhaps silly question, but i am stuck in the question to find out how they go this spot yield rates:
Yr 1 – 2.20%
Yr -2- 2.51%..so on
2) how they got bond value 5.57 to calculate current bond price?Thank you
And 3) from where they got additional interest of 037% ( except coupon 3.57) and why they need that interest and the amount of 120 in the same calculation( is it non current liability?)
Thank you
I am sorry, but you are going to have to tell me which exam this question is from.
(I have all past exams, but I cannot remember the name of every question in every
exam 🙂 )1. The credit rating is to be BBB. Therefore the spot yield rate in 1 years time is 1.5% plus 70 basis points, and is therefore 1.5 + 0.7 = 2.2%.
Similarly, in 2 years time it will be 1.7 + 0.81 = 2.51%, and so on.2. The question says that the coupon rate is currently 5.2% but will increase by 37 basis points. 5.2 + 0.37 = 5.57%.
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