CFA Practice Question

There are 294 practice questions for this study session.

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 ______

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

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
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?
You need to log in first to add your comment.