Under what conditions would the traditional yield spread be close to the static spread?
What will be an ideal response?
There are three conditions that will cause the traditional yield spread to be closer to the static spread: a short maturity, a flat yield curve, and bullet payment at maturity for a corporate bond. More details are given below.
Exhibit 18-3 shows the static spread and the traditional yield spread for bonds with various maturities and prices, assuming the Treasury spot rates shown in Exhibit 18-1 . Notice that the shorter the maturity of the bond, the less the static spread will differ from the traditional yield spread. The magnitude of the difference between the traditional yield spread and the static spread also depends on the shape of the yield curve. The steeper the yield curve, the more the difference for a given coupon and maturity. Another reason for the small differences in Exhibit 18-3 is that the corporate bond makes a bullet payment at maturity. The difference between the traditional yield spread and the static spread will be considerably greater for sinking fund bonds and mortgage-backed securities in a steep yield curve environment.
You might also like to view...
Focusing pricing objectives on sales growth can provide a measure of increasing market share as well as an incentive and target for managers for a period of time
Indicate whether the statement is true or false
Tucker Corp Tucker Corp has the following product information: Sales price $12 per unit Contribution margin ratio 40% Fixed costs $45,000 Refer to the Tucker Corp information above. What is the break-even point in units?
A) 1,500 units. B) 112,500 units. C) 216,000 units. D) 9,375 units.
Why might you find a gap between target customers’ receptivity to buying a new venture’s products or services and actually buying the products or services?
a. The concept sounded or looked better in the reality check compared to the reality in the marketplace b. The concept was not demonstrated or communicated effectively to the target customer c. The venture failed to execute effectively in the marketplace, including packaging and merchandising d. All of the above could lead to this gap
The U.S. government has adopted __________ to facilitate seeking consensus of the most affected groups regarding the substance of new regulations, a process which arose from the Japanese style of negotiation
a. administrative review b. federal mediation c. regulatory negotiations d. rule arbitration