- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 2. Fixed-Income Cash Flows and Types
- Subject 2. Fixed-Income Contingency Provisions
CFA Practice Question
The indenture for a callable bond contains a call price schedule that starts at 105% of par value on the first call date and declines systematically to a call price of 100% of par value on the bond's maturity date. In the absence of default by the bond issuer, ______
B. holders of this bond may receive a final payment as large as 95% of par value.
A. holders of this bond may receive a final payment as large as 105% of par value.
B. holders of this bond may receive a final payment as large as 95% of par value.
Correct Answer: A
The size of the final payment for this bond is uncertain because of the call provision and the associated call price schedule.
User Contributed Comments 8
| User | Comment |
|---|---|
| surjoy | Can anyone explain the answer? |
| TheHTrader | If the issuer decides to call at 105 for full issue then the bondholders will receive 105 for final payment. |
| jpducros | mmmm, any other explanation ? |
| Jurrens | It says "may" receive, meaning the next call date, the issuer may call the bond at 105%. However, if they do not, then they will receive 100% at maturity of the bond. They will never receive a "final payment" (meaning last payment, either from being called or maturity of bond) below 100%, so B cannot be right. |
| 2014 | In some callable issues, final price is uncertain to calculate because of call options. In addequte information in question best is A |
| jonan203 | c'mon guys, you can never recieve less than par at maturity....unless you own greek debt and are forced to take a 50% haircut at gunpoint. |
| johntan1979 | Like I said, some people should try playing golf for a change. |
| davidt876 | good to see johntan back for level II |