FINA 475 Lecture Notes - Lecture 5: Prepayment Of Loan, Yield Curve, Yield Spread
12 Oct 2017
Department
Course
Professor
Document Summary
Us treasury yield: lowest an investor would accept. Assume it is the most recently issued debt. Bb 5 year corporate bond: 11% (junk bond) and aa 5 year corporate bond: Yield spread = 11%-5% = 6% (600 basis points) A 10 year corporate bond: 3. 4% and us treasury 10 year: 2. 2% Yield spread = 3. 4% -2. 2% = 1. 2% (120 basis points) The yield spread versus the benchmark gives idea of risk premium. Relative yield spread = (ylda - yldb)/yldb or (10 yr corp - ust 10 yr)/ust 10 yr. Yield spread = (3. 22% - 2. 53%)/2. 53% = 27. 2727% 10 year a rated corporate bond, callable in 7 years. Liquidity: 10 year corporate bond, a rating, 6% coupon, 1. 5 billion issued, more liquid, spread is 120 bps, 10 year corporate bond, a rating, 6% coupon, 175 million issued, less liquid than 1, spread is 150 bps.
