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this is really annoying me sir! your inputs as to which one to follow 1st or 2nd?
sir if we have a 3year bond. we have been provided with government bond yield of 4,25%, and we have been provided with 1year credit spread=75 , 2yr =95 and 3yr 120 basis for a single rating of “AA”, in order to value the MV of bond, do we use YTM as:
1st one: 5% for 1st yr coupon,5.2% for 2nd yr coupon and 5.45% for 3rd yr capital and coupon
or 2nd method of: 5.45% i.e. 4.25+1.2=5.45% for all the 3years coupon and final repayment?
It is the first method.
Have you read the technical article about this on the ACCA website?