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Chapter 6

Example 3

For example, if the spot yield curve for government bonds is:

Year %
1 2.85
2 2.90

3 3.05
etc etc

the table above can still be used to find bond yields as follows:

 Company A is an A rated company with some 3 year bonds in issue.

The yield on the bonds (k d) will now be: 3.05% + 24 basis points = 3.29%.

Illustrations and further practice

Now try TYU 7 from Chapter 6

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