- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 44. Introduction to Fixed-Income Valuation
- Subject 5. Yield Measures for Fixed-Rate Bonds

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**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?

B. 7.78%

C. 8.41%

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%

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**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 |