- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 44. Introduction to Fixed-Income Valuation
- Subject 2. Relationships between Bond Price and Bond Characteristics

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**CFA Practice Question**

You have a bond with six years to maturity. The bond pays 12% coupons semi-annually, but the market demands only a 10% return. If the market rate stays constant, what is the price path for year 6, 4, 2, and 0?

B. $95.08; 96.53; 98.17; 99.06

C. $108.86; 106.46; 103.54; 100

A. $72.75; 78.66; 87.32; 100

B. $95.08; 96.53; 98.17; 99.06

C. $108.86; 106.46; 103.54; 100

Correct Answer: C

N=12, I/Y=5, PMT=6, FV=100; PV=?=108.86; N=8, PV=106.46; N=4, PV= 103.54; N=0, PV =100

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**User Contributed Comments**
9

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

gruszewski |
No need to compute. It is the only answer with amortized premium. |

katybo |
well done! |

Done |
Common sense...12% cpn, mkt wants 10% PREMIUM Only answer is the last one. Still do the math to be familiar with the computation |

MUTE |
Do you really have the time? if you understand the concept, premium bond will be decreasing towards maturity while the value of Discounted bond will be increasing towards maturity |

steved333 |
True, it's just logic, but you need to take the time to do th math. What if you get a similar question, and there are two possibilities that put it at premium? |

TammTamm |
It is the only answer that shows this is a premium bond |

antihead |
This is training here., hence I computed it in 1 minute. In the exam, no reason to compute. |

jonan203 |
you guys, what if every answer started at a premium? at least compute the first year, i highly doubt that real exam will so obviously have only one answer that starts at a premium. |

farhan92 |
agree with antihead you'll also increase your finger speed -your ladies will appreciate this fellas |