- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 7. Yield and Yield Spread Measures for Fixed-Rate Bonds
- Subject 2. Other Yield Measures, Conventions, and Accounting for Embedded Options
CFA Practice Question
What is the yield to first call of a 20-year, 8.5% bond with a market price of $104.95 if the first call date is in seven years with a call price of $108?
B. 7.78%
C. 8.41%
A. 7.58%
B. 7.78%
C. 8.41%
Correct Answer: C
N=14, PV = -104.95, PMT = 4.25, FV = 108, I/Y =? = 4.206 YTM = 4.206(2) = 8.41%
User Contributed Comments 12
| User | Comment |
|---|---|
| Masterkang | It cant be right! If the call Price was 104.95, the yield to first call would be exactly 8.5%. How can the yield be smaller if the call price is bigger than that? |
| sullivd | It's right. If the price were 104.95 the yield to first call would be 8.1%. 8.5/104.95 |
| 6YASHWIN | how did u get pmt=4.25 |
| dmfcrowe | semi annual coupons so 8.5/2. Its the default used in the states and as a result also by the CFA. Remember that for the exam if they dont mention coupon periods. |
| mattg | always assume semi-annual coupons unless otherwise stated - that's how they will get ya! |
| fmhp | Even computed with annual rate, the result is 8.42% |
| papajeff | Nothing wrong with working these out while studying, but on the test this should take 10 seconds and not require a calculator. |
| 2014 | call price is 108 |
| johntan1979 | I think it's best that you examine YOURSELF first before jumping to the conclusion that AnalystNotes posted something wrong. So far, after 15 Study Sessions I had not come across a single question that is 100% wrong. So I can conclude that I trust AnalystNotes more than anyone else that negatively comment here. |
| davcer | in BAII in CF you have CFO -104.95 C01= 4.25 F01= 13 C02= 112.25 F02= 1 cpt irr = 4.206*2 and then you get 8.412 hope this helps |
| enetis | amen john! |
| dbedford | And in case you wondered we multiply YTM by 2 to convert from semi-annual to annual form |