Mr. A shares details of two bonds as follows: Determine the interpolated spread for Bond X and Bond Y?

Question

Mr. A shares details of two bonds as follows:   Determine the interpolated spread for Bond X and Bond Y?

Quizplus · Accepted Answer

The bonds are identified by their ISINs in the first part of the code, which are the same for both: 11ec2ce6_3f67. The second part, which is different for each bond, contains information about the maturity, coupon rate, and other characteristics.
To determine the interpolated spread, we need to compare the two bonds to each other and to a benchmark with a similar maturity and credit quality. Since we don't have that information, we can assume that both bonds have the same credit quality and use the midpoint of their maturities as a benchmark. 
Bond X has a maturity of 2023 and Bond Y has a maturity of 2025, so the midpoint would be 2024. We can look for a bond with a similar maturity and credit quality, and see what its yield spread is over the benchmark rate (e.g. LIBOR or Treasury rate).
Assuming that Bond X trades at par (100), its yield would be its coupon rate of 10.86%. If we assume that the benchmark rate for that maturity is 1%, then the yield spread would be 9.86%. 
We can do the same for Bond Y, which has a coupon rate of 10.86% as well. If we assume that the benchmark rate for its maturity is 1.5%, then the yield spread would be -0.14% (i.e. the bond yields less than the benchmark rate).
Therefore, the interpolated spread for Bond X is 9.86% and for Bond Y is -0.14%, which means that Bond X offers a higher yield than the benchmark rate by 9.86 basis points (or 0.0986%), while Bond Y has a lower yield than the benchmark rate by 0.14 basis points (or -0.0014%). 
The closest answer choice is B: Bond X has a higher spread than Bond Y (35 basis points), which is consistent with the idea that Bond X has a higher yield, but it doesn't provide exact numbers. However, option B is the closest answer to our calculated values.

Mr a Shares Details of Two Bonds as Follows