Consider bond with the 2-year maturity paying a 5% annual coupon. If it sells for $100.20, what is its static spread? (Remember that the pure or "stripped" yield curve is 4% at 1 year and 4.5% at 2 years.) Express the static spread as a decimal, not a percentage. You should find that the spread is positive (why?)

b.) Now assume the bond sells for $101.80. What is the static spread (as a decimal)? Why is it now negative?

Answer rating: 100% (QA)

a To calculate the static spread of the bond we first need to calculate the bonds yield to maturity ... View the full answer