Following are U.S. Treasury benchmarks available on December 31, 2007: (15 point
ID: 2786107 • Letter: F
Question
Following are U.S. Treasury benchmarks available on December 31, 2007: (15 points)
Issue
Yield (%)
US/T 3.125 11/30/2009
3.218
US/T 3.375 11/30/2012
3.616
US/T 4.25 11/15/2017
4.201
US/T 4.75 02/15/20377
4.619
On the same day, the following trades were executed:
Issuer
Issue
Yield (%)
General Elect. Capital Corp.
GE 4.125 09/01/2009
4.008
EI Du Pont De Nemours & Co.
DD 5 01/15/2013
4.843
The Coca-Cola Company
KO 5.35 11/15/2017
5.020
Based on the above, complete the following table:
Issue
Yield (%)
Treasury Benchmark
Benchmark
Spread (bps)
Relative Yield
Spread
Yield Ratio
GE 4.125 09/01/2009
4.008
DD 5 01/15/2013
4.843
KO 5.35 11/15/2017
5.020
Issue
Yield (%)
US/T 3.125 11/30/2009
3.218
US/T 3.375 11/30/2012
3.616
US/T 4.25 11/15/2017
4.201
US/T 4.75 02/15/20377
4.619
Explanation / Answer
Benchmark spread (bps) = (Yield on bond - Yield on Benchmark) * 100
Relative yield spread = (Yield on bond - Yield on Benchmark) / Yield on Benchmark
Yield Ratio = Yield ob bond / Yield on Benchmark
Treasury Benchmark
Issue Yield (%)Treasury Benchmark
Bench mark Spread (bps) Relative Yield Spread Yield Rattio GE 4.125 09/01/2009 4.008 US/T 3.125 11/30/2009 (4.008 - 3.125) * 100 = 75 bps (4.008 - 3.125) / 3.125 = 0.24 = 24% (4.008 / 3.125 ) = 1.28 DD 5 01/15/2013 4.843 US/T 3.375 11/30/2012 (4.843 - 3.616) * 100 = 122.7 bps (4.843 - 3.616) / 3.616 = 0.34 = 34% (4.843 / 3.616) = 1.23 KO 5.35 11/15/2017 5.020 US/T 4.25 11/15/2017 (5.020 - 4.201) * 100 = 81.9 bps (5.020 - 4.201) / 4.201 = 0.19 = 19% (5.020 / 4.201) = 1.19