#### Dr. Jayanthi Sankaran

##### Well-Known Member

Q. 315.3. Assume the reference term structure, which happens to be the theoretical Treasury spot rate curve, is flat at a semiannually compounded rate of 1.30% per annum. A $100 par bond with a 20-year maturity pays a 4 3/8 coupon (4.375% coupon rate) and has a current price of $95.82. Which is nearest to the bond's spread with semi-annual compounding;

**a.k.a., bond-equivalent basis**?

a) 1.74%

b) 3.40%

c) 4.00%

d) 4.70%

A. 315.3 Although computing the bond spread = 3.4% is easy, what exactly does the term "bond-equivalent basis" mean in this context?

Thanks

Jayanthi