- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 2. Time Value of Money in Finance
- Subject 2. Fixed Income Instruments and the Time Value of Money
CFA Practice Question
A zero-coupon bond is selling for $50.26 and has 10 years remaining to maturity. What rate of interest is required by the market if we assume semi-annual compounding?
B. 5.0%
C. 7.0%
A. 3.5%
B. 5.0%
C. 7.0%
Correct Answer: C
N=20, PMT=0, FV=100, PV=-50.26, I/Y=?=3.49965, Annual = 3.5x2 = 7.0%
User Contributed Comments 13
| User | Comment |
|---|---|
| Gina | interest reported annualized |
| stefdunk | always annualize the interest |
| mirfanrana | always interest reported annualized |
| Mutsa | huh , confusing. |
| FayeMulvaney | I always seem to get an error when I try and compute I/Y with BA II Plus. Could somebody please help and tell me the keystrokes as I must be missing something - cheers! |
| jpducros | Faye, you seem to have a sign issue. Aways enter your PV and FV with opposite signs. |
| Saxonomy | ARGGHHHH!!! Can someone pls always remind me to double the amount I get as a result before looking at answer options? |
| 2014 | randomly select highest amount since it seems considerably discount to par value and use that to compute pv try choices get answer 100/1.035 ^ 20 = 50.26 so 7 |
| GouldenOne | Shouldn't we ^2 the semiannual yield and not multiply by 2? I know it doesn't matter in this problem.. but it would certainly be good to know |
| vatsal92 | Nah, it would always be multiplication. |
| Fabulous1 | @GouldenOne: We dont want to calculate an effective annual rate (this would be using your approach) but the YTM for a semiannual bond (stated rate) which is not compounded |
| pigletin | do we assume par is 100 or 1000? |
| mali97 | Hey why the hell are we assuming 100 to par |