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Basic Question 1 of 10
The real risk-free rate is 0.75%. Average inflation over the next year is 2%. Investors require 1.5% for future inflation uncertainty. What would be the price of a default-free bond with a face value of $1,000 and one full year to maturity?
B. $973
C. $959
A. $988
B. $973
C. $959
User Contributed Comments 1
| User | Comment |
|---|---|
| davidt87 | feel like its worth stating that it's a zero-coupon bond |
Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh
Learning Outcome Statements
explain how the phase of the business cycle affects policy and short-term interest rates, the slope of the term structure of interest rates, and the relative performance of bonds of differing maturities;
describe the factors that affect yield spreads between non-inflation-adjusted and inflation-indexed bonds;
CFA® 2025 Level II Curriculum, Volume 6, Module 37.