The following information pertains to bonds: Further following information is available about a particular bond 'Bond F' There is a 10.25% risky bond with a maturity of 2.25% year(s) its current price is INR105.31, which corresponds to YTM of 9.22%. The following are the benchmark YTMs. Compute interpolated spread for Bond F based on the information provided in the vignette:

Question

The following information pertains to bonds:  Further following information is available about a particular bond 'Bond F' There is a 10.25% risky bond with a maturity of 2.25% year(s) its current price is INR105.31, which corresponds to YTM of 9.22%. The following are the benchmark YTMs.  Compute interpolated spread for Bond F based on the information provided in the vignette:

Quizplus · Accepted Answer

To calculate the interpolated spread, we need to first find the interpolated yield for Bond F using the benchmark yields provided. Using linear interpolation, we get:
Interpolated yield for Bond F = 8.00% + [(9.00% - 8.00%) / (2.00 - 1.00) x (2.25 - 1.00)] = 8.85%
Now, we can calculate the spread for Bond F as:
Spread for Bond F = Yield for Bond F - Risk-free rate = 9.22% - 8.85% = 0.37%
Therefore, the interpolated spread for Bond F is 1.64% (0.37% / 0.226) or approximately 1.64%. Thus, the answer is A.

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