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Basic Question 0 of 9
Which of the following is an advantage of the arbitrage-free valuation approach to valuing fixed income securities, relative to the traditional valuation approach?
B. The valuation of individual cash flows based on specific spot rates
C. The specification of a single spot rate curve which is used to derive the current value of the bond
D. The automatic adjustment for changes in cash flows due to embedded options
A. The adjustment for semi-annual compounding of interest
B. The valuation of individual cash flows based on specific spot rates
C. The specification of a single spot rate curve which is used to derive the current value of the bond
D. The automatic adjustment for changes in cash flows due to embedded options
User Contributed Comments 3
| User | Comment |
|---|---|
| Victorialy | Arbitrage free valuation applies spot rates to CF of bond |
| maryprz14 | But this is a characteristic or feature of arbitrage-free, not an advantage! |
| khalifa92 | the price calculated from spot rates and yield to maturity don't match there will be an arbitrage opportunity. |
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Learning Outcome Statements
demonstrate the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity
recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct
identify conduct that conforms to the Code and Standards and conduct that violates the Code and Standards
CFA® 2025 Level I Curriculum, Volume 6, Module 3.