- CFA Exams
- CFA Exam: Level I 2021
- 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**

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.

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**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? |