- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 44. Introduction to Fixed-Income Valuation
- Subject 1. Bond Prices and the Time Value of Money

###
**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 ______.

B. $688

C. $1,312

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 |