CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

A zero-coupon bond is selling for $50.26 and has 10 years remaining to maturity. What rate of interest is required by the market if we assume semi-annual compounding?

A. 3.5%
B. 5.0%
C. 7.0%
Correct Answer: C

N=20, PMT=0, FV=100, PV=-50.26, I/Y=?=3.49965, Annual = 3.5x2 = 7.0%

User Contributed Comments 13

User Comment
Gina interest reported annualized
stefdunk always annualize the interest
mirfanrana always interest reported annualized
Mutsa huh , confusing.
FayeMulvaney I always seem to get an error when I try and compute I/Y with BA II Plus. Could somebody please help and tell me the keystrokes as I must be missing something - cheers!
jpducros Faye, you seem to have a sign issue. Aways enter your PV and FV with opposite signs.
Saxonomy ARGGHHHH!!! Can someone pls always remind me to double the amount I get as a result before looking at answer options?
2014 randomly select highest amount since it seems considerably discount to par value and use that to compute pv try choices get answer 100/1.035 ^ 20 = 50.26
so 7
GouldenOne Shouldn't we ^2 the semiannual yield and not multiply by 2? I know it doesn't matter in this problem.. but it would certainly be good to know
vatsal92 Nah, it would always be multiplication.
Fabulous1 @GouldenOne: We dont want to calculate an effective annual rate (this would be using your approach) but the YTM for a semiannual bond (stated rate) which is not compounded
pigletin do we assume par is 100 or 1000?
mali97 Hey why the hell are we assuming 100 to par
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