CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Fixed-Rate Bonds
A 5-year annual-pay corporate bond has a yield to maturity of 4.60%. The interpolated yield on government bonds of the same maturity is 3.85%. The bond's G-spread is closest to:
The G-spread is the corporate bond's yield to maturity less the government benchmark yield at the same maturity. Here 4.60% minus 3.85% gives 0.75%. It measures the compensation over the government curve for credit and liquidity risk.
- A0.75%Correct
- B0.85%
- C4.60%
Explanation
The G-spread is the bond's yield minus the interpolated government bond yield of the same maturity: 4.60% - 3.85% = 0.75%. Option 0.85% results from adding rather than correctly subtracting a mismatched number. The 4.60% option is simply the bond's own yield and ignores the benchmark.
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