› CFA › CFA Level 1 › Which of the following is most likely considered an example of matrix pricing?

Which of the following is most likely considered an example of matrix pricing?

Add A Reply
Login
  • Author
    Posts
    • Avatar of kevinpb639kevinpb639
      Participant
        19 Oct 2017 at 10:48 pm
        Up
        51
        ::

        A. Debt-rating approach only
        B. Yield-to-maturity approach only
        C. Both the yield-to-maturity and the debt-rating approaches

        The practice test I took had the answer listed as A but in my notes I had written down matrix pricing involves using the YTM of more liquid bonds to estimate the YTM of infrequently traded bonds. Can anyone provide some color around this?

      • Avatar of kevinpb639kevinpb639
        Participant
          20 Oct 2017 at 8:32 am
          Up
          4
          ::

          Anybody??

        • Avatar of mitch895mitch895
          Participant
            • CFA Charterholder
            20 Oct 2017 at 4:04 pm
            Up
            3
            ::

            To me this seems like a bit of an unclear question. I mean sure, we need to be comparing bonds with similar credit ratings and characteristics, but one of these characteristics is the term to maturity

          • Avatar of CFAcharterwannabeCFAcharterwannabe
            Participant
              20 Oct 2017 at 11:22 am
              Up
              2
              ::

              @kevinpb639‌ Yeah OK so the answer is correct. The definition you have noted down is known as the debt rating approach where you value bonds using similar bonds. You know what I mean. The yield to maturity approach means calculating the yield to maturity on company’s current debt. These are the two approaches used to calculate Kd for WACC. Hope this helps.

          • Author
            Posts
          Viewing 3 reply threads
          • You must be logged in to reply to this topic.