CFA Practice Question

There are 147 practice questions for this study session.

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
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