CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

Given the following spot rates:

The arbitrage-free value of a 3-year, 10% Treasury issue would be closet to:
A. 94.60
B. 95.16
C. All on-the-run Treasuries equal 100.
Explanation: Arbitrage-free value = 5/(1.05)1 + 5/(1.052)2 + 5/(1.054115)3 + 5/(1.056174)4 + 5/(1.058303)5 + 105/(1.060453)6= 95.16

User Contributed Comments 13

User Comment
Ebenezer You can make a profit by buying the bond and selling the coupon payments for a profit.
kulla I think this question will take like 3 minutes to solve even if we use calculator.
Check You can also make a profit by selling the coupon strips and add your exam preparation material as a give-away.
panos another way to make a profit is to keep the money instead of taking the exams
Tomas Taking the cost for the exam & prep. materials and discounting it at prevailing market rates presents a nice savings potential = profit...
octavianus buy individual coupon strips for a total of 93.48
combine strips
sell bond for 100
tonytough to make profit short sell treasury to get proceeds of 100, buy back reconstituted strips at 95.16 and give back to broker, net profieof 4.83.

this qn will take minimum of 2.5 min, however principal may be set in final for less req time.

we must risk the enroll fees to get hoped return in april, pass or fail, otherwise we still fail
steved333 Don't forget to add the $100 face value to the last period's cash flow
soukhov PV = FV / (1+i)^n
maria15 Where did the 5 in the numerator come from?
tweety87 it's half of the 10% (semiannual)
janis36 panos is making a good point.
surin1996 Hi, can someone explain what octavianus said or what tonytough sai please?
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