Question #77
Reading: Reading 25 The Term Structure and Interest Rate Dynamics
PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf
Page: 30
Status: Unattempted
Question
A 2-year $1,000 par, 5% (semi-annual pay) Mexa-corp bond has a Z-spread of 45bps. Using the following spot curve, compute the invoice price of the bond. Maturity 0.50 1.00 1.50 2.00 Spot rates 4.50% 5% 5.25% 5.5%
Answer Choices:
A. $993.45
B. $982.65
C. $956.32
Explanation
Add the Z-spread to each of the spot rates to discount the bond's cash flows