The worked question on this page is original educational practice. It is not represented as a question from an official previous-year examination paper.
01 / UNDERSTANDING
Review the question
Design an original spread calculation that asks for observation first and an appropriately qualified interpretation second. Change the short end alone, then compare the resulting curve shape. An original checkpoint is: What is the five-minus-one-year yield spread in basis points? Supported answer: 100 basis points. Explain the decisive fact, then alter one condition and solve again. This is an original practice method, not a claim that the question appeared in an official past paper.
02 / UNDERSTANDING
The concept in context
Curve comparisons can be misleading when credit quality, tax treatment or other instrument characteristics differ materially. A useful study check is to check maturity and instrument comparability, then separate curve observations from proposed explanations. Explain why the method fits the stated facts before applying it to a changed situation.
03 / UNDERSTANDING
A worked learning case
In an invented curve, the one-year yield is 5% and the five-year yield is 6%. The five-minus-one-year spread is one percentage point, or 100 basis points. That describes an upward slope between the two points. It does not by itself prove a particular future inflation rate or reveal how much of the spread represents a term premium.
ORIGINAL EDUCATIONAL PRACTICE
Try it before you check.
What is the five-minus-one-year yield spread in basis points?
Show the answer and reasoning
100 basis points.
The difference is 6% minus 5%, equal to one percentage point. One percentage point equals 100 basis points, so the spread is 100 basis points. The calculation describes the slope between two stated maturities; explaining the slope requires further analysis of expectations, risk compensation and the comparability of the underlying instruments.
Two traps to watch for.
- Reading a curve shape as a certain forecast.
- Comparing yields from materially different credit-risk categories.
YOUR TOPIC-SPECIFIC LEARNING MAP
Learn from the attempt
Check maturity and instrument comparability.
Calculate spreads in consistent units.
Separate curve observations from proposed explanations.
Explain the idea, apply it to a new situation, then check what changed in your reasoning.
BANKERS TUTORIAL · SOURCE NOTES
Keep the source alongside your notes.
Official links provide subject context and authoritative reference material. This guide’s explanation, scenario and question are original Bankers Tutorial learning content.
- m.rbi.org.in https://m.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=711
- rbi.org.in https://rbi.org.in/scripts/PublicationsView.aspx?Id=18086
For RBI preparation, check the current official notice before relying on changing dates, rules or examination requirements.
