CFA Practice Question

There are 266 practice questions for this study session.

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
You need to log in first to add your comment.