CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Fixed-Rate Bonds
A 2-year annual-pay bond has a face value of 100, a coupon rate of 5%, and a price of 100. Its yield to maturity is most likely:
The yield to maturity is equal to 5.0%. When a bond is priced at par, the discount rate that equates the present value of cash flows to price is the coupon rate. A discount would imply a higher yield and a premium a lower yield.
- AEqual to 5.0%Correct
- BGreater than 5.0%
- CLess than 5.0%
Explanation
A bond priced at par has a yield to maturity equal to its coupon rate, because discounting 5 coupons and 105 at 5% gives exactly 100. A yield above or below the coupon rate would imply a discount or premium price.
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