- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 7. Yield and Yield Spread Measures for Fixed-Rate Bonds
- Subject 1. Periodicity and Annualized Yields
CFA Practice Question
Consider a zero-coupon bond. Which compounding method yields a higher compounded total return?
B. Quarterly compounding
C. Both methods yield the same compounded total return.
A. Semi-annual compounding
B. Quarterly compounding
C. Both methods yield the same compounded total return.
Correct Answer: C
Semi-annual compounding has a higher annual yield-to-maturity. However the compounded total return is the same for both semi-annual and quarterly compounding.
User Contributed Comments 5
| User | Comment |
|---|---|
| jorellana9 | key word here is "total" |
| farhan92 | zero coupon is also a pretty important word here |
| chcarnes | Key word is "word" |
| dbedford | The key word is "retake" |
| Sagarsan88 | If zero coupon does not pay any coupon...what exactly is being compounded here? |