- CFA Exams
- CFA Level I Exam
- Study Session 15. Fixed Income (2)
- Reading 46. Understanding Fixed-Income Risk and Return
- Subject 1. Sources of Return
CFA Practice Question
An 8%, 20-year bond is selling for $90.80 ($100 face value). What is the total amount of coupon and reinvestment income necessary to earn the yield to maturity?
A. $160.00
B. $428.12
C. $528.12
Explanation: Find YTM = 9% from N = 40, PV =-90.80, PMT =4, FV = 100, I/Y=4.5 (x2), 4[(1.045)40 -1]/.045 = $428.12
User Contributed Comments 9
| User | Comment |
|---|---|
| Will1868 | when finding YTM don't you have to enter the fv as Par + final pmt (ie 100+4.5)??? |
| wollogo | Will868 - the annuity formula includes the final payment, the 100 is treated as a seperate cash flow YTM maturity assumes coupons can be reinvested at YTM. The Reinvestment income necessary is the value of all the coupons invested at the YTM (9.5%). i.e. a 20 year zero coupon bond with FV 528.12 selling at 90.8 has a yield of 9.5% (semi-annuall) |
| PedroEdmundo | Don't really get it since they ask total amount of coupon and Reinvestment Income; but we have only RI here. Total of both =160+428.12 |
| danlan | After getting YTM, use N=40, YTM=4.5, PV=0, PMT=40 to get FV |
| Shelton | N=40,PV=-90.80,PMT=4,FV=100=>I=4.5=>FV=-428.12 (C) |
| mpapwa22 | Okay guys, why are we not adding pricipal amount to this....got 528.12. any 1 2 explain further please |
| Clude | It is annuity afterwards. You invest $4 of coupon every 6 month, what can u get in the end? => N=40, PMT= -4, i=4.5%, CPT FV = 428.12 |
| azramirza | Keeping pv =0 fv=428.12 |
| meeravenk | Once you get the yield = 9 % , just enter PMT = 4, PV = 0, I = 4.5, N = 40 and CPT FV to get the answer |