- CFA Exams
- CFA Level I Exam
- Study Session 12. Fixed Income (1)
- Reading 32. The Term Structure and Interest Rate Dynamics
- Subject 2. Yield to Maturity
CFA Practice Question
Assume the spot rates r(1) = 9%, r(2) = 8% and r(3)= 7%. Consider a two-year annual coupon bond. The coupon rate is 6%. What is the MOST LIKELY yield to maturity y(2)?
A. 9.28%
B. 8.87%
C. 8.12%
Explanation: We have a downward-sloping spot curve. r(1) > y(2) > r(2) so A is impossible.
y(2) should be closer to r(2) than to r(1) because the bond's largest cash flow occurs in Year 2.
User Contributed Comments 4
| User | Comment |
|---|---|
| janis36 | Is the actual YTM=8.029% ? |
| zipphani2 | Awesome explanation |
| alex2001 | Hello, I found 8,03 roughly. |
| Scc0813 | I got the same result |