CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

If an investor's required return is 12%, the value of a 10-year maturity zero-coupon bond with a maturity value of $1,000 is closest to ______.

A. $312
B. $688
C. $1,312
Correct Answer: A

$1,000 x 1/(1+0.06)20 = $311.8

User Contributed Comments 13

User Comment
virginia Should be: 1000/(1+0.12)10 = 322
virginia I take back my previous comment. Need to use 6-month period even for zero-coupon bond.
synner can use N=20,I/Y=6,FV=1000,PMT=0
CPT PV=311.8
Done How about just elimating C and D...they dont make sense and imputting the 312 in your calculator as PV, 1000-FV 10-N
capitalpirate if it's a zero-coupon, why should we use semi-annual basis?
Spawellian since it doesn't specify whether it's a corporate bond or a government bond, assume government (as they're the most prolific issuers of bonds)

That's my opinion
Fotsta To Capitalpirate
The rationale is that the pricing of a zero coupon bond should be consistnt with th pricing of a semiannual coupon bond.
Reading 64/ page 366 Valuing a zero-coupon Bond
cong The stated yield is always semi-annual interest rate unless the question states otherwise.
Jurrens just a rule of thumb, always use semi-annual unless it states otherwise. Majority of all bond issue are semi-annual
cleopatraliao we should never assume anything...
moneyguy I get a different answer on the BAii. -905 every time.
johntan1979 Fotsta got the right reasoning why we use semi-annual. We are doing comparison, that's why. That's the only time we should use semi-annual for a zero coupon bond. No comparison purposes, $322 is the right answer.
khalifa92 most american bonds are semi anually
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