FRM Part I · FRM Exam Part I · Corporate Bonds
A corporate bond dealer quotes a bid of 98.40 and an ask of 98.90 (per 100 of par) for a thinly traded bond. What is the quoted bid-ask spread as a percentage of the mid-price?
The spread is 0.50 and the mid-price is 98.65, so the relative bid-ask spread is about 0.51%. This measure divides the full spread by the midpoint. The 0.25% figure is only the half-spread, which is a different quantity.
- A0.51%Correct
- B0.25%
- C1.02%
- D0.50%
Explanation
Spread = 98.90 - 98.40 = 0.50. Mid = (98.40 + 98.90)/2 = 98.65. 0.50/98.65 = 0.507%, about 0.51%. Dividing by the bid-ask midpoint is correct; 0.25% is the half-spread, and 1.02% wrongly doubles the spread.
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