CFA Practice Question

There are 490 practice questions for this study session.

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 ______.

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.

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
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