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Basic Question 4 of 7
The arbitrage-free valuation approach is different from traditional valuation because:
II. the bond is broken into zero-coupon bonds and discounted by multiple spot rates.
III. spot rates are estimated for each cash flow maturity.
I. the bond is broken into zero-coupon bonds and a single bond rate is used.
II. the bond is broken into zero-coupon bonds and discounted by multiple spot rates.
III. spot rates are estimated for each cash flow maturity.
User Contributed Comments 3
| User | Comment |
|---|---|
| Luminos | These basic questions are great to determine whether one understands a conept. The multiple answers did unnerve me at first but will be beneficial. |
| Qoqi | Quick way to review the theory too |
| ldfrench | ^^Agree with Luminos |
You have a wonderful website and definitely should take some credit for your members' outstanding grades.
Colin Sampaleanu
Learning Outcome Statements
explain what is meant by arbitrage-free valuation of a fixed-income instrument;
calculate the arbitrage-free value of an option-free, fixed-rate coupon bond;
CFA® 2025 Level II Curriculum, Volume 4, Module 27.