CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

What is the value of a 2-year, 6% coupon, option-free bond given the following interest rate tree?

A. 99.755
B. 101.302
C. 102.560
Explanation: Value of the bond at upper node for period 1 = [(100 + 6) / (1.062605) + (100 + 6) / (1.062605)] / 2 = 99.755.

Value of the bond at lower node for period 1 = [(100 + 6) / (1.046379) + (100 + 6) / (1.046379)] /2 = 101.302.

Current value of the bond at node 0 (today) = [(99.755 + 6) / (1.038796) + (101.302 + 6) / (1.038796)] /2 = 102.560.

User Contributed Comments 2

User Comment
Guavifo If you don't round, you get 102.55
Nando1 Remember to add the coupon payments to the value of the bond each time when you go backwards. When you're in a rush it's pretty easy to forget and there's a good chance one of the possible answers will incorporate this mistake.
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