CAF-7 · Chapter 9 · Question 8 of 15
The process of calculating a zero-coupon yield curve (spot rates) by sequentially extracting rates from the market prices of existing coupon-bearing bonds is known as:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Bootstrapping
Explanation
Bootstrapping is a mathematical technique used to derive the spot yield curve for different maturities by starting with short-term zero-coupon bonds and working sequentially up to longer-term coupon bonds.
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