- CFA Exams
- CFA Exam: Level I 2021
- Study Session 14. Fixed Income (1)
- Reading 44. Introduction to Fixed-Income Valuation
- Subject 1. Bond Prices and the Time Value of Money

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**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?

B. 5.0%

C. 7.0%

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%

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**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 |