CFA Practice Question

There are 266 practice questions for this study session.

CFA Practice Question

What is the reinvestment income in dollars from holding a 9%, 11-year bond bought at $107.23 to maturity, $100 face value, assuming rates remain constant?

A. $55.12
B. $99.00
C. $174.02
Correct Answer: A

N = 22, I/Y = 4% (from calculated YTM), PV = 0, PMT = 4.5, FV =?= 154.12, RI = 154.12 -99 = 55.12

User Contributed Comments 14

User Comment
Gina why is I/Y not 4.5%?
Gina oops, okay:
current yield=annual interest payment/bond price=.08
I/Y=.08/2=4%
katybo first calculate YTM
jgwl why do you use PV = 0?
kindal to calculate only coupon interest and reinvestment interest excluding any gain/loss in capital.
moneyguy You don't need to enter a PV amount when calculating. Just calculate FV of all coupon payments at YTM rate. Then subtract total coupon payments.
Emily1119 For current yield= annual interest payment/ bond price=0.08.
How can I know the annual interest payment?
2014 Capital invested was not 100, but 107.23. Then, why reduced only 100 but not 107.23
johntan1979 55.1106
tshepi i am totally lost when it comes to this kind of questions
jasonkwk tshepi , actually it is very easy:

first you have to find the YTM ,give the 4 available variable

second, substitute the YTM into I/Y and set PV=0 to find FV.

the FV is the total return, minus the coupon payment and you will get the reinvestment income.
pranubal AnalystNotes is using this formula

Coupon[(1 +YTM )N - 1 ] / YTM in decimal to calculate total earnings.
praj24 Starting to get this now :D
aparmar why subtract 99?
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