CFAI Mock 1 exam feedback------- “Understanding Yield Spread,” Frank J. Fabozzi 2008 Modular Level I, Vol. 5, pp. 352-355, 359-361 Study Session 16-65-e, i compute, compare, and contrast the various yield spread measures; compute the after-tax yield of a taxable security and the tax-equivalent yield of a tax-exempt security … _Yield ratio = (yield on tax-exempt bond) / (yield of US Treasury) = 3.86 / (3.86 + 100bp) = 3.86 / 4.86 = 0.79 ----------------- Schweser Yield ratio = Higher Yield/ Lower yield = 4.86 / 3.86 Which formula to use??
Here you are talking about municipal bonds I guess… Have a look at what Mr Fabozzi says: http://books.google.co.uk/books?id=F1hk6UFlsUsC&pg=PA248&lpg=PA248&dq=municipal+bond+yield+ratio&source=web&ots=miIclSjd1E&sig=TjbuDp5QF8EBBZ4GyIQNGik_I9g&hl=en#PPA219,M1
yield ratio, current yield and theres another yield formula given in chap 68 of book 5. can someone pls list them all for refresher… i dont have the book in front of me. and i am getting restless cuz i studied this just yesterday.
strangedays, thank you. yes, this is a question about municipal bonds. Actually, I was confused what to put in the nominator and to denominator, having applied wrong formula
I think the yield ratio always has the Treasury in the denominator b/c you are coming some bond to a benchmark. It gets into when munis are trading at a higher % of Treasuries you have to start looking at how worth it is to buy taxables in a portfolio based on what their tax rate is.
pashuha00 Wrote: ------------------------------------------------------- > CFAI Mock 1 exam feedback------- > “Understanding Yield Spread,” Frank J. Fabozzi > 2008 Modular Level I, Vol. 5, pp. 352-355, > 359-361 > Study Session 16-65-e, i > compute, compare, and contrast the various yield > spread measures; > compute the after-tax yield of a taxable security > and the tax-equivalent yield > of a tax-exempt security > … > _Yield ratio = (yield on tax-exempt bond) / (yield > of US Treasury) = > 3.86 / (3.86 + 100bp) = 3.86 / 4.86 = 0.79 > > ----------------- > Schweser Yield ratio = Higher Yield/ Lower yield = > 4.86 / 3.86 > > Which formula to use?? I think the FIRST ONE. One thing about Schweser is that candiates find ERRATA in their books EVERY year. I trust the CFAI to make LESS errors