- 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
A corporate bond with a face value of $1,000 matures in two years and has a 10% coupon paid at the end of each year. The current price of the bond is $950. What is the yield to maturity for this bond?
B. 10.52%
C. 13.00%
A. 10.26%
B. 10.52%
C. 13.00%
Correct Answer: C
User Contributed Comments 15
| User | Comment |
|---|---|
| leoo | how did you get that answer? |
| vrs3 | Use calculate with: FV =$1000 N = 2 Coupon = PMT = $1000 x 10% = $100 PV = Current price of the bond = -$950 Solve for i which is the yield = 12.99% |
| vrs3 | Meant use calculator with: |
| anita | present value should be entered as negative |
| stefdunk | or, use the cashflow worksheet, -950, +100, +1100, IRR = 13.00 |
| gaur | is there a way to calculate YTM on the HP 12c. I have been doing it the dumb way by inputting the i from the 4 choices and calculating for PV untill I get -950. Doesn't take that long after u input the fv, n & pmt |
| MUTE | Using HP 12c= Pmt=100, PV= -950, FV= 1000, N=2, i=? 12.997 approximately 13% |
| Spawellian | remember corporate bonds assume annual coupons, government/agency bonds assume semi annual coupons |
| Beret | Careful with the HP12C calculations : The PRICE and YTM calculations are done assuming a "semiannual" coupon payment. The question refers to an "annual" payment! |
| mattg | Think of it from the potential INVESTOR's point of view: PV is negative because it is what you would have to pay for the bond today (cash outflow). That tripped me up when entering into the HP 12C |
| cleopatraliao | or i use trial n error... |
| 2014 | Thanks stefdunk |
| Cfrey | can someone please explain for the TI approved calculator |
| farhan92 | as silly as this sounds i only recently found out about the +/- button...its great! |
| khalifa92 | congrats 90s boy |