- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 52. Portfolio Risk and Return: Part I
- Subject 1. Major Return Measures

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**CFA Practice Question**

The semi-annual interest rate that equates the present value of the bond's cash flow to its current market price is 4.75%. It follows that ______

II. the bond's effective annual yield is 9.73%.

III. the bond's yield-to-maturity is 9.50%.

I. the bond's horizon return is 9.35%.

II. the bond's effective annual yield is 9.73%.

III. the bond's yield-to-maturity is 9.50%.

Correct Answer: II and III

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**User Contributed Comments**
17

User |
Comment |
---|---|

kalps |
EAQ - 1.045 (squared) YTM X 2 |

Aimy |
4.75%*2=9.5% |

Aimy |
How did you get the answer III? |

Gina |
EAY=(1+HPY)^365/t -1 =1.0475^2 -1 =0.0973 |

danlan |
YTM=2*semi annual interest, this is the definition. |

surob |
What is the horizon return? I understand that annual return cannot be less than 2*4.75. |

StanleyMo |
yield-to-maturity = annualized return especially for bond use. to calculate EAR ( for 1n year ), use calculator press [iconv] , NOM = 9.5, C/Y = 2, and press compt for EFF. |

Shalva |
YTM is the IRR rate for bond cash flows. |

SANTOSHPRABHU |
Effective Annual Rate = ( 1 + 0.0475)^ 2 - 1 = 0.097256 X 100 = 9.73 Yeild to Maturity = 2 X Semi Annual Interest = 2 X 4.75 = 9.50 |

bhaynes |
Calculation on BA II Plus: [2nd] INCONV NOM = 9% C/Y = 2 (for semiannual) Compute EFF = 9.7256% It is key to save time on the exam using tricks like this. You only have 180 mintues to answer 120 questions in each session. Time management is essential. |

Gooner7 |
Let me get this straight: yield to maturity just means whatever the yield is if it were taken over the whole year, with no adjustment for compounding? |

najat |
bhaynes, just in case other people are wondering, in your calcuation NOM= 9.5 (4.75%*2) |

tankdan |
It doesn't say the bond matures at the end of the year...are we just supposed to assume this? |

johntan1979 |
Horizon return: Total return from an investment portfolio over a certain time frame (horizon) i.e. horizon return = HPY |

Debashree |
nice q. |

craig |
Semi annual yield...see calculator explanation |

AdrianSchi |
haneys, when I input the data in the BAII, it get EFF= 9.2025... Any knowledge on why that could be? |