CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

Assume the spot rates r(1) = 5%, r(2) = 6% and r(3)= 7%. Consider a three-year annual coupon bond. The coupon rate is 4%. What is the MOST LIKELY yield to maturity y(3)?
A. 5.95%
B. 6.15%
C. 6.82%
Explanation: r(2) < y(3) < r(3) so A is impossible.

y(3) should be closer to r(3) than to r(2) because the bond's largest cash flow occurs in Year 3.

User Contributed Comments 2

User Comment
rjdelong 4 /1.05
+ 4 /1.06^2
+ (4 + 100)/1.07^3
= PV = 92.264
N=3, FV=100, PMT=4, PV=92.264, CPT I/Y... = 6.94%
BradRoss got the same as you but i went with C as closest to 6.94
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