CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

What is the yield to first call of a 20-year, 8.5% bond with a market price of $104.95 if the first call date is in seven years with a call price of $108?

A. 7.58%
B. 7.78%
C. 8.41%
Correct Answer: C

N=14, PV = -104.95, PMT = 4.25, FV = 108, I/Y =? = 4.206 YTM = 4.206(2) = 8.41%

User Contributed Comments 12

User Comment
Masterkang It cant be right! If the call Price was 104.95, the yield to first call would be exactly 8.5%.
How can the yield be smaller if the call price is bigger than that?
sullivd It's right. If the price were 104.95 the yield to first call would be 8.1%. 8.5/104.95
6YASHWIN how did u get pmt=4.25
dmfcrowe semi annual coupons so 8.5/2. Its the default used in the states and as a result also by the CFA. Remember that for the exam if they dont mention coupon periods.
mattg always assume semi-annual coupons unless otherwise stated - that's how they will get ya!
fmhp Even computed with annual rate, the result is 8.42%
papajeff Nothing wrong with working these out while studying, but on the test this should take 10 seconds and not require a calculator.
2014 call price is 108
johntan1979 I think it's best that you examine YOURSELF first before jumping to the conclusion that AnalystNotes posted something wrong.

So far, after 15 Study Sessions I had not come across a single question that is 100% wrong. So I can conclude that I trust AnalystNotes more than anyone else that negatively comment here.
davcer in BAII in CF you have CFO -104.95 C01= 4.25 F01= 13 C02= 112.25 F02= 1 cpt irr = 4.206*2 and then you get 8.412 hope this helps
enetis amen john!
dbedford And in case you wondered we multiply YTM by 2 to convert from semi-annual to annual form
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