CFA Level I · CFA Level I Exam · Fixed-Income Issuance and Trading
A dealer quotes a bond at 98.40 bid and 98.70 ask per 100 par. An investor buys EUR 5 million par and immediately sells it back to the same dealer at the unchanged quote. The investor's round-trip cost is closest to:
The round-trip cost is about EUR 15,000. The investor buys at 98.70 and sells at 98.40, losing 0.30 per 100 par, which is 0.30% of EUR 5 million. Using only half the spread would give EUR 7,500, which understates the cost.
- AEUR 7,500
- BEUR 15,000Correct
- CEUR 30,000
Explanation
The spread is 98.70 − 98.40 = 0.30 per 100 par. On EUR 5,000,000 par the cost is 0.30% × 5,000,000 = EUR 15,000. EUR 7,500 is half the spread, and EUR 30,000 wrongly uses 0.60.
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