- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 6. Fixed-Income Bond Valuation: Prices and Yields
- Subject 2. Flat Price, Accrued Interest, and the Full Price
CFA Practice Question
The market discount rate affects the ______.
II. accrued interest
III. full price
I. flat price
II. accrued interest
III. full price
Correct Answer: I and III
The accrued interest does not depend on the market discount rate.
User Contributed Comments 6
| User | Comment |
|---|---|
| pranubal | How? please explain. |
| enetis | b/c both the clean and dirty price are simply the PV of a future stream cash flows. As the the market discount rate (YTM) changes the PV also also changes as you have to discount those cash flows using a different rate. |
| ascruggs92 | You should know that market discount rate affects flat price. If not, reread the section. Full (Dirty) Price =Flat (Clean) Price + Accrued Interest Therefore, because flat price is a component of the full price, the market rate affects it as well |
| Rsanches | good point |
| houstcarr | pretty sure this question is trying to make the point that you don't discount accrued interest, even though time value of money concept would imply that you do. yes in reality discounting AI would be impractical |
| mikus | Coupon rate and NOT market discount rate is involved in calculation of accrued interest. |