- CFA Exams
- CFA Level I Exam
- Study Session 17. Portfolio Management (2)
- Reading 46. Economics and Investment Markets
- Subject 4. Credit Premiums and the Business Cycle
CFA Practice Question
An investor estimates that over the next year the real risk-free rate is 0.75%, the expected inflation rate is 1.9%, and premium for inflation uncertainty is 0.4%. A corporate bond with a face value of $1,000 and a full year to maturity is selling for $952. What would be the implied credit premium?
A. 1.6%
B. 2%
C. 2.4%
Explanation: 1000/952 - (1 + 0.75% + 1.9% + 0.4%) = 2%
User Contributed Comments 1
| User | Comment |
|---|---|
| pveace | Either way is to use BAII FV=1000; PV=-952;N=1, CPT=I less (1.9+1.4+0.75) |