- CFA Exams
- CFA Exam: Level I 2021
- Study Session 14. Fixed Income (1)
- Reading 42. Fixed-Income Securities: Defining Elements
- Subject 1. Basic Features of a Fixed-Income Security

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**CFA Practice Question**

The reference rate is 8.95% for an annual-pay variable rate bond. The coupon formula specifies that the coupon rate equals the reference rate minus 25 basis points. The coupon payment for $1,500,000 par value of this bond is ______.

B. $87,000

C. $138,000

A. $130,500

B. $87,000

C. $138,000

Correct Answer: A

The coupon rate is the sum of the reference rate minus the margin: 0.0895 - 0.0025 = 0.087. The coupon payment is the product of the par value and the coupon rate.

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**User Contributed Comments**
9

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

DoanDuy |
1 diem = 0.01% |

ljamieson |
1500000*(.0895-.0025) |

heshammm |
how can i get the basis point is it 25/100 or 25/1000 , wat is the methodology used ? |

skath |
I think its 25/100. eg. 1% change is equal to 100 basis points change in the interest rate. |

woori |
go with easy, 1bp= 0.01% |

popolistic |
Also I find it easier to start with: 100bp = 1% and reduce it from there (i.e. 50bp = 0.5%, 25bp = 0.25%, 10bp = 0.1% 5bp = 0.05%, 1bp = 0.01% )OR icrease (i.e. 200bp = 2% etc) |

jonan203 |
one bip, is one hundreth of a percent 1 bp = 0.01% 10 bp = 0.10% 100 bp = 1.00% 25% = 2500 bps .25 = 2500 bps 25% = 25/100 = .25 = 2500 bps |

ldfrench |
Usually, it's the reference rate + BPs. Gotta be careful with the reading. |

Chevy |
How about dividing the basis points by 10 000 to get the decimal answer and then multiply by 100 for the percentage |