- 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
The bond-equivalent yield of an annual-pay bond is always less than that of an annual-pay rate because ______
B. the annual-pay bond will pay twice as much interest in one payment.
C. the bond-equivalent yield compounds only half as often for the annual-pay bond.
D. the square root of the annual-pay yield is taken to convert from one to two pay periods in a year and maintain the same yield when the two periods are compounded back to an annual basis.
A. the annual-pay bond is divided by two for the semi-annual equivalent.
B. the annual-pay bond will pay twice as much interest in one payment.
C. the bond-equivalent yield compounds only half as often for the annual-pay bond.
D. the square root of the annual-pay yield is taken to convert from one to two pay periods in a year and maintain the same yield when the two periods are compounded back to an annual basis.
Correct Answer: D
User Contributed Comments 6
| User | Comment |
|---|---|
| mrushdi | Can any one explain pls? |
| dah62 | Not sure as I got bored (=confused ;-) ) by about half way through the second line of D. The others were all wrong though so used process of elimination!!! |
| gracecfa | haha same here :D |
| gill15 | Just because the first three make NO sense...then you know D is correct... A) annual pay yield is Multiplied by 2 not divided B)Thats just dumb C) Same as B |
| davcer | D simply describes the way in which you get the BEY |
| CJPerugini | ^ nice |