- 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
Consider a 7%-coupon bond that pays semi-annually, has eight years to maturity and a face value of $100. The market requires an interest rate of 8% on bonds of this risk level. What is this bond's price?
B. $94.17
C. $106.05
A. $91.15
B. $94.17
C. $106.05
Correct Answer: B
N=16, I/Y=4, PMT=3.5, FV=100, PV=?=94.17
User Contributed Comments 16
| User | Comment |
|---|---|
| synner | where did they get FV=100? |
| Done | maturity |
| smillis | The question doesn't state FV of $100, you have to deduce it given the magnitude of the answers... |
| Vadik | I/Y should be 8% in case of semi-annual payments, i mean if p/y set as 2. |
| Yurik74 | Usually annual interet rate is quoted unless indicated otherwise |
| mattg | The convention in bond markets is to quote annual interest rates that are double semi-annual rates". The question is saying the bond pays a TOTAL of 7% out each year: 3.5% every six months |
| DonAnd | question did say 'face value of $100' |
| hit81 | face value=par value = 100 |
| moneyguy | I was having problems with the BAii giving wrong TVM answers. What I had to do was 2nd, I/Y and change from 12 to 1 for these bond problems. I/Y was set to 12 for monthly compounding. I hope this helps others as I was very confused. Happy calculating everyone! |
| ascruggs92 | Future value = Face Value = Par Value = 100. |
| Inaganti6 | hahaha the question DID state the FV. |
| abs013 | Do we just ignore the 7%? |
| abs013 | Ignore my last comment |
| khalifa92 | LOOL people really didn't see the hidden 100, dunno what ull do when doin the exam nervously. |
| khalifa92 | if the question doesn't state the FV then we use 1000 because it's mostly used in the states. |
| ZainabA | Can someone please write the formula with the solution? i'm a little bit confused |