- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 1. Fixed-Income Instrument Features
- Subject 1. Basic Features of a Fixed-Income Security
CFA Practice Question
The reference rate is 8.95% for an annual-pay variable rate bond. The coupon formula specifies that the coupon rate equals the reference rate minus 25 basis points. The coupon payment for $1,500,000 par value of this bond is ______.
B. $87,000
C. $138,000
A. $130,500
B. $87,000
C. $138,000
Correct Answer: A
The coupon rate is the sum of the reference rate minus the margin: 0.0895 - 0.0025 = 0.087. The coupon payment is the product of the par value and the coupon rate.
User Contributed Comments 10
| User | Comment |
|---|---|
| DoanDuy | 1 diem = 0.01% |
| ljamieson | 1500000*(.0895-.0025) |
| heshammm | how can i get the basis point is it 25/100 or 25/1000 , wat is the methodology used ? |
| skath | I think its 25/100. eg. 1% change is equal to 100 basis points change in the interest rate. |
| woori | go with easy, 1bp= 0.01% |
| popolistic | Also I find it easier to start with: 100bp = 1% and reduce it from there (i.e. 50bp = 0.5%, 25bp = 0.25%, 10bp = 0.1% 5bp = 0.05%, 1bp = 0.01% )OR icrease (i.e. 200bp = 2% etc) |
| jonan203 | one bip, is one hundreth of a percent 1 bp = 0.01% 10 bp = 0.10% 100 bp = 1.00% 25% = 2500 bps .25 = 2500 bps 25% = 25/100 = .25 = 2500 bps |
| ldfrench | Usually, it's the reference rate + BPs. Gotta be careful with the reading. |
| Chevy | How about dividing the basis points by 10 000 to get the decimal answer and then multiply by 100 for the percentage |
| thevinu | 1,500,000 * (8.95% - 0.25%) |