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Wiley Question of the Week - Fixed Income: Valuation Concepts (Sponsored)

The following is a paid post sponsored by Wiley

Question

An analyst collects the following data on the par curve for government securities:
1              4.00%
2              6.00%
3              8.00%

Which of the following is closest to the two-year spot rate in this market?
A. 5.00%.
B. 6.00%.
C. 6.03%.

Video Explanation and Answer

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1 = 0.06/1.04 + 1.06/(1 + r(2))2 => r(2) = 0.060612

B? C?

Without any calcuations, Ive seen these questions so many times on the qbanks… , my guess is C…

125mph wrote:

Without any calcuations, Ive seen these questions so many times on the qbanks… , my guess is C…

LOL, do you mean because C option is the only non-exact calculation?

Probably true.

Las almas de todos los hombres son inmortales, pero las almas de los justos son inmortales y divinas.
Sócrates

When the par curve slopes upward, the spot curve lies above it.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

I made the same guess, since the spot rate curve has to be higher than the par curve

Failure will never overtake me if my determination to succeed is strong enough!

carolinesherif wrote:
I made the same guess, since the spot rate curve has to be higher than the par curve

If you know that the spot curve has to be higher than the par curve, then it’s not a guess; it’s a logical conclusion.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

When do we get a new question of the week. It’s been a few weeks!