- CFA Exams
- CFA Level I Exam
- 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**

Consider a bond with coupons. The annual yield for semi-annual compounding is 5.84%. Which is

*most likely*to be the quarterly yield if quarterly compounding is used?A. 1.52%

B. 1.46%

C. 1.38%

**Explanation:**The quarterly yield x 4 should be less than 5.84%. Therefore, C is the only possible answer.

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**User Contributed Comments**
7

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

oac9 |
Can someone arrive at the answer using the formula? |

droko |
yes. 1.38 x 4 = 5.52% < 5.84%. oac9: Why not? |

dlinhai |
1.0584^0.25=1.014. Not sure how C is derived though? |

littlecow |
dlinhai: you cannot use 1.0584 directly as it is an annualized semi-annual rate. You need to convert it to an annual rate first. |

pveace |
Shall we use an equation 7 on page 417 of the curriculum? A general formula to convert an annual percentage rate for m periods per year, denoted APRm, to an annual percentage rate for n periods per year. But using so I got a slightly different answer = 1.45 |

fobucina |
I'm also getting pveace's answer. Initially, I converted APR into a per-period rate (APR/2) and subsequently compounded on a semi-annual basis to find EAR ([1 + APR/2]^2 - 1). I then found the per quarter rate by find the fourth root of 1 + EAR and subtracted the result by one. My answer was approx. 1.46%. Can someone tell me what I am assuming wrong? |

nmech1984 |
Using the EAR is ~1.43%. I don't get it at all. However, the comprehensive AN explanation is right. |