CFA Practice Question

CFA Practice Question

The Annual Par Yield to Maturity BEY for Treasuries with maturity of 5 years is 5.44%, and the Spot Rate BEY for 5 years is 5.52%. What is the price of a Zero-Coupon Treasury with face value $1,000 and 5 years to maturity?
A. 761.66
B. 764.41
C. 764.63
Explanation: Have to be careful that when it says Bond Equivalent Yield (BEY), the real rate for 6 months is the rate given divided by 2.

User Contributed Comments 3

User Comment
Clude 5.44% is useless. Spot 5 yr annual interest rate
EAY = (1+BEY/2)^2-1 = (1+5.52%/2)^2 - 1 = 5.596%
So i=5.596, N=5, pmt=0, fv=1000, cpt PV = 761.66.
Clude Always remember EAY = (1+0.5*BEY) ^2 -1, where EAY is the effective annual interest.
Sandar dont even need EAY here.. BEY /2 =i/Y
N=10, FV=1000: zero coupon bonds are calculated semi-annually
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