medium · CFA Level I fixed-income
A fixed-income desk at Vesper Foods needs to price a non-traded 4-year, 5% annual coupon bond. They observe two comparable traded bonds: beginitemize item Bond X: 3-year, 4% coupon, priced at 98.50 (YTM = 4.55%) item Bond Y: 5-year, 6% coupon, priced at 102.20 (YTM = 5.49%) enditemize Using linear interpolation for matrix pricing, the estimated YTM for the non-traded bond is:
- 5.00%
- 5.50%
- 5.02%
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