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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
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User Contributed Comments 1

User Comment
davidt87 feel like its worth stating that it's a zero-coupon bond
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You have a wonderful website and definitely should take some credit for your members' outstanding grades.
Colin Sampaleanu

Colin Sampaleanu

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.