A corporate bond offers a 5% coupon rate and has exactly 3 years remaining to maturity. Interest is paid annually. The following rates are from the benchmark spot curve: $\begin{array} { l c }
\text { Time-to-Maturity } & \text { Spot Rate } \
\hline 1 \text { year } & 4.86 \% \
2 \text { years } & 4.95 \% \
3 \text { years } & 5.65 \% \
\hline
\end{array}$ The bond is currently trading at a Z-spread of 234 basis points. The value of the bond is
closest to:

Question

A corporate bond offers a 5% coupon rate and has exactly 3 years remaining to maturity. Interest is paid annually. The following rates are from the benchmark spot curve: $\begin{array} { l c } 
\text { Time-to-Maturity } & \text { Spot Rate } \
\hline 1 \text { year } & 4.86 \% \
2 \text { years } & 4.95 \% \
3 \text { years } & 5.65 \% \
\hline
\end{array}$ The bond is currently trading at a Z-spread of 234 basis points. The value of the bond is
closest to:

Quizplus · Accepted Answer

The correct answer is A. The bond is currently trading at a Z-spread of 234 basis points, which means that the yield to maturity (YTM) of the bond is 5% + 2.34% = 7.34%. The price of the bond can be calculated using the following formula:Bond Price = (C / YTM) * (1 - 1 / (1 + YTM)^n) + FV / (1 + YTM)^nwhere:C = coupon paymentYTM = yield to maturityn = number of years to maturityFV = face value of the bondIn this case, the bond has a face value of $1,000, a coupon rate of 5%, and 3 years remaining to maturity. Plugging these values into the formula, we get:Bond Price = (50 / 0.0734) * (1 - 1 / (1 + 0.0734)^3) + 1000 / (1 + 0.0734)^3= 92.38Therefore, the value of the bond is closest to 92.38.

A Corporate Bond Offers a 5% Coupon Rate and Has