Skip to content

CFA Level I · CFA Level I Exam · Fixed-Income Bond Valuation: Prices and Yields

A 10-year, 4% annual-pay bond with a face value of 100 is priced at a yield-to-maturity of 4%. If the yield rises to 5%, the bond's price is most likely closest to:

The price is about 92.28. Discount the 4 annual coupons at 5% for ten years to get about 30.89, add the discounted principal of about 61.39, and the total is 92.28. A bond priced at par falls below par when its yield rises above the coupon rate.

  1. A88.61
  2. B92.28Correct
  3. C96.04

Explanation

At 5%, the annuity factor for 10 years is (1-1.05^-10)/0.05 = 7.7217, so coupons are worth 4 x 7.7217 = 30.89. Principal is 100 x 0.61391 = 61.39. The total is 92.28. 96.04 results from linear duration-like scaling and 88.61 from overstating the effect.

Did you get it right without looking?

One question tells you little. A timed set on Fixed-Income Bond Valuation: Prices and Yields shows your real accuracy, how long you take and where you lose marks.

Practise Fixed-Income Bond Valuation: Prices and YieldsFree diagnostic mock

More Fixed-Income Bond Valuation: Prices and Yields questions