- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 6. Fixed-Income Bond Valuation: Prices and Yields
- Subject 3. Relationships between Bond Price and Bond Characteristics
CFA Practice Question
What is the price change for a 10-year bond that has a 10% coupon, with payments made semi-annually? The market rate is 10%, the bond sold for $100, and the market yield changes instantly to 11%.
B. $3.77
C. -$5.97
A. -$3.77
B. $3.77
C. -$5.97
Correct Answer: C
N=20, I/Y=5.5, PMT=5, FV=100, PV=?=94.03, diff. = 94.03 - 100 = -5.97
User Contributed Comments 16
| User | Comment |
|---|---|
| synner | noted, FV=100 |
| haarlemmer | I am going to kill my calculator! |
| omer123 | no it's you best friend, be nice. :) |
| kamin | why is PMT=5, is 10%*100*1/2?? |
| sergashev | yes, semiannually |
| IvanTG | Agreed! they couldn't pick worse calculators! |
| 8thlegend | GRRR bond priced at $100, i tried to proved them wrong and i just ended up wasting time =( |
| shajidubai | In all such questions we have to note down " carefully" the various values. Here n=10*2=20; rate=11/2, semi annul coupon=10/2=5, fv=100.... then select the calculator keys after clearing anything in TVM worksheets we will get the correct answer. |
| 2014 | CF = 5, f19, 105, i=5.5, npv = 94.02 npv - 100 = 5.97 |
| johntan1979 | Nothing wrong with the calculator. A tennis ball in your hands is worth a few dollars. A tennis ball in Rafael Nadal's hands is worth six or seven French Open trophies. |
| gill15 | I hope you do understand the only reason the FV = 100 is because the coupon rate = market rate initially otherwise you would have to calculate the FV. |
| farhan92 | may seem a little long winded but I calculated PV at 10% and 11%. It takes like 23 extra seconds but just gives you a bit more confidence in your answer. |
| ascruggs92 | No gill15, FV, standing for "Future Value," the payment you will be receiving in the future, which will always be equal to the face value of the bond. |
| degosan9 | You guys, if bond sold for 100 then PV=FV. Bond sold for face. Market=coupon. Assume 100 or 1000 for bond prices. Gill is right. |
| Fabulous1 | Yeah but the reasoning should be the other way around. Your face value is fixed with the indenture. The reason your present value is equal to your face value in the beginning is that coupon rate equals YTM and an increase in YTM decreases your PV accordingly. |
| Inaganti6 | John Tan chill out nobody is going to hand you a Nobel Laureate for knowing how to use a Texas Instruments BA 2 Plus |