- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 44. Introduction to Fixed-Income Valuation
- Subject 2. Relationships between Bond Price and Bond Characteristics

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**CFA Practice Question**

What is the value of a zero-coupon bond that has six years to maturity and an applicable interest rate of 9%?

A. $58.97

B. $59.63

C. $76.79

**Explanation:**N=12, I/Y=4.5, PMT=0, FV=100, PV=?=58.97

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**User Contributed Comments**
5

User |
Comment |
---|---|

DLUCFA |
How are we supposed to know that this is problem assumes semiannual discounting? |

wtff |
that's true for every bond. assume semiannual compounding if not mentioned.... |

Joel1980 |
Seems a little odd you compound semiannually on a zero coupon bond... |

Joel1980 |
I take that back... makes perfect sense! :-) The use of six-month period is required in order to have uniformity between the present value calculation of the maturity value for a coupon bond that pays semi-annually and a zero-coupon bond. |

toine_1234 |
Periodic bond yields for both straight and zero-coupon bonds are conventionally computed based on semi-annual periods, as US bonds usually make two coupons payments per year (see notes from Reading 6 / Subject 5) |