Gross redemption yield = 2.5% pa Risk-free rate = 0.5% pa Fundamental spread = 0.3% pa The discount rate the company used = 0.5% + (2% - 0.3%) = 2.2% pa Understand from previous chapter, discount rate = risk free rate + matching adjustment( company’s own asset spread - fundamental spread), where does the 2% come from? Thanks for the reply in advance.
Hi: company's own asset spread = excess of yield on asset held over risk-free rate = 2.5% - 0.5% = 2%
