CFA Practice Question

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CFA Practice Question

The market discount rate affects the ______.

I. flat price
II. accrued interest
III. full price
Correct Answer: I and III

The accrued interest does not depend on the market discount rate.

User Contributed Comments 6

User Comment
pranubal How? please explain.
enetis b/c both the clean and dirty price are simply the PV of a future stream cash flows. As the the market discount rate (YTM) changes the PV also also changes as you have to discount those cash flows using a different rate.
ascruggs92 You should know that market discount rate affects flat price. If not, reread the section.

Full (Dirty) Price =Flat (Clean) Price + Accrued Interest

Therefore, because flat price is a component of the full price, the market rate affects it as well
Rsanches good point
houstcarr pretty sure this question is trying to make the point that you don't discount accrued interest, even though time value of money concept would imply that you do. yes in reality discounting AI would be impractical
mikus Coupon rate and NOT market discount rate is involved in calculation of accrued interest.
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