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Hello
In the qs 1 of sept DEC 2017 ..spot yield rate is added to basis points …I. Didn’t understand why we are adding both ..and what is the theory behind basis points ..why do we use it ?
Another qs in general I want to ask ..do we will b asked inflation incorporation in bond prices …do we do it ?
The more risky the bonds are (the worse their rating), then the higher will be the return, to compensate for the risk.
The basis points are the extra added to the yield on government borrowing for the level of risk. (1 basis point = 0.01%).
This question is based on a technical article on the ACCA website, and it is worth reading.
I am afraid that I don’t understand what you are asking in your second question.
Thank u for your response .
About my second question I am sorry if it is not making sense ..may be due to my lack of knowledge on the topic ….what I meant that is their any effect of inflation on bond prices ..like when we use cashflows we incorporate inflation effects …so in bonds ..does inflation takes part in any way ?
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