标题: Always Use Spot Rate for Discounting? [打印本页] 作者: w1977 时间: 2011-7-11 18:24 标题: Always Use Spot Rate for Discounting?
105. An analyst has gathered the following information:
3-Year Treasury Rate: 3.75% (constant across all 3 years)
Treasury Spot Rate
year 1 3.00%
year 2 3.50%
year 3 4.00%
Based on the arbitrage-free valuation approach, a $1,000 face value bond that
pays a 5 percent annual coupon and matures in 3 years has a current market value
closest to:
A. $1,027.75.
B. $1,028.67.
C. $1,034.85.
Correct answer is B...
As a general rule, are we supposed to use the treasury spot rates whenever calculating / discounting a security? What is wrong with using the 3 year treasury rate of 3.75% for all 3 years?作者: ftwcfa 时间: 2011-7-11 18:24
3.75 is the yield of a 3 year Treasury Security. As per no arbitrage, all the cashflows must be discounted by their appropriate spot rates.作者: koba 时间: 2011-7-11 18:24
^ so based on that logic, if the question does not state "no arbitrage / arbitrage free approach", we can safely use the 3-year constant treasury rate and not the appropriate spot rate?
thanks!作者: MythosHF 时间: 2011-7-11 18:24
Yeah, but I doubt they would ask something like that since they are trying to test a specific LOS作者: bluejazzy 时间: 2011-7-11 18:24
I still don't get it. At 3.75% spot you get answer C but if you use the 3-year spot, you get answer A作者: LokiDog2 时间: 2011-7-11 18:24
If you are getting A as the answer it could be from rounding
