CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Fixed-Rate Bonds
A 2-year bond has a face value of 100, pays a 6% annual coupon, and is priced at 98.19. Its yield to maturity is closest to:
The yield to maturity is 7.0%. Discounting the coupon of 6 in year one and 106 in year two at 7% gives a present value of 98.19, which equals the price. A 6% discount rate would give par and 8% would give about 96.43.
- A6.0%
- B7.0%Correct
- C8.0%
Explanation
At 7%: 6/1.07 = 5.607 and 106/1.1449 = 92.585, total 98.19, which equals the price. At 6% the value would be 100 and at 8% it would be 96.43, so 7.0% is correct.
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