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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?

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
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes

Barnes

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.