How to calculate Z-Spread:
Form is
PV (known variable) = Coupon yield / (Spot1+ZS)^1 + Coupon yield / (Spot2+ZS)^2…+ FV + Last coupon / (SpotN+ZS)^N
thus method for calculate ZS is trial and error?!
Do I have a plenty of time on exam for manually trial and error ZS calculation?
If a z spread calculation comes up on the exam hopefully we will be given spreads in the multiple choice selection, so it would be a plug and play exercise. Can’t see them asking a more open ended question on this, as it’s not really a test of knowledge. Tbh I would be expecting more if a conceptual question on the z spread, with calculations more likely required for g and i. Just my two cents though of course
In the real world, you would do it by (sophisticated) trial and error.
If they gave you a question on the exam where you have to compute the z-spread, the best advice is to try the middle value (answer choice B). If it gives you the correct value, you’re done. If it doesn’t give you the correct value, you’re still done: if the value is too large, the z-spread was too small, so the correct answer is C; if the value is too small, the z-spread was too large, so the correct answer is A.
That’s really Trial & error:)
Thank you both for suggestion.
My pleasure.