- 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
If an investor's required return is 12%, the value of a 10-year maturity zero-coupon bond with a maturity value of $1,000 is closest to ______.
B. $688
C. $1,312
A. $312
B. $688
C. $1,312
Correct Answer: A
$1,000 x 1/(1+0.06)20 = $311.8
User Contributed Comments 13
| User | Comment |
|---|---|
| virginia | Should be: 1000/(1+0.12)10 = 322 |
| virginia | I take back my previous comment. Need to use 6-month period even for zero-coupon bond. |
| synner | can use N=20,I/Y=6,FV=1000,PMT=0 CPT PV=311.8 |
| Done | How about just elimating C and D...they dont make sense and imputting the 312 in your calculator as PV, 1000-FV 10-N |
| capitalpirate | if it's a zero-coupon, why should we use semi-annual basis? |
| Spawellian | since it doesn't specify whether it's a corporate bond or a government bond, assume government (as they're the most prolific issuers of bonds) That's my opinion |
| Fotsta | To Capitalpirate The rationale is that the pricing of a zero coupon bond should be consistnt with th pricing of a semiannual coupon bond. Reading 64/ page 366 Valuing a zero-coupon Bond |
| cong | The stated yield is always semi-annual interest rate unless the question states otherwise. |
| Jurrens | just a rule of thumb, always use semi-annual unless it states otherwise. Majority of all bond issue are semi-annual |
| cleopatraliao | we should never assume anything... |
| moneyguy | I get a different answer on the BAii. -905 every time. |
| johntan1979 | Fotsta got the right reasoning why we use semi-annual. We are doing comparison, that's why. That's the only time we should use semi-annual for a zero coupon bond. No comparison purposes, $322 is the right answer. |
| khalifa92 | most american bonds are semi anually |