I am a beginner who recently found a job in the FICC sector. My superior gave me this question to think about: 'We have a bond with a 5% coupon rate and a maturity of 10 years, and the discount rate refers to the IRS rate. Represent the value of this bond using a method other than the DCF method; a hint is that this bond was issued today.' I've been contemplating this for a few days, but I couldn’t devise a way to represent the market value of the bond other than using the DCF method. How should I approach this?
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$\begingroup$ I think you need a little more information. I could envisage that you could derive the value of the bond, knowing that a bond issued at par has a YTM of 5% and then you can evaluate its relative value to other bonds or to swaps (on asset swap) and subtract or add relevant price increments from Par to arrive at a market price for the bond considering its relative position in amongst other instruments. $\endgroup$– Attack68 ♦Sep 25 at 13:01
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$\begingroup$ In fact, this quiz emerged while discussing the evaluation methods for floating rate notes. Theoretically, since FRNs determine the coupon and the discount rate through the same yield curve, their value should be at par. Hence, this quiz was posed while contemplating under what circumstances the value of an FRN would not be at par. $\endgroup$– FSHSep 25 at 13:10
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