- CFA Exams
- CFA Exam: Level II 2021
- Study Session 12. Fixed Income (1)
- Reading 32. The Term Structure and Interest Rate Dynamics
- Subject 2. Yield to Maturity

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**CFA Practice Question**

Assume the spot rates r(1) = 9%, r(2) = 10% and r(3)= 11%. Consider a two-year annual coupon bond. The coupon rate is 6%. What is the MOST LIKELY yield to maturity y(2)?

B. 9.12%

C. 9.97%

A. 8.95%

B. 9.12%

C. 9.97%

Correct Answer: C

r(1) < y(2) < r(2) so A is impossible.

y(2) should be closer to r(2) than to r(1) because the bond's largest cash flow occurs in Year 2.

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