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Determining the Spread of Two Securities

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Category: Business / Finance / The Discounted Cash Flows Model

Determination Basis Points

Determination of the basis point spread of two securities with different maturities discount and premium based on their yields to maturity.

The spread between TEX corporation's note with a coupon of 6.5%, seven-year remaining term, and selling for 101-3/8 and ACME corporation's debenture with a coupon of 9.5%, 18-year remaining term and selling for 98-3/4 is:

a. 338 basis points.
b. 339 basis points.
c. 340 basis points.
d. 341 basis points.

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Solution Summary

The expert determines the spread of two securities in basis points.

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Bond Yield 7 Year Note 18 Year Debenture Spread
Face Value 100 100
Annual Coupon Rate 6.50% 9.50%
Years To Maturity 7 18
Payment Frequency 2 2
Value of Bond ...

Solution provided by:
Robert Reinhart, MBA
Education
  • MBA, Merage School of Business, Univ of Cal, Irvine
  • BA, Univ of Cal, Irvine
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