- 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**

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

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**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 |