CFA Level I · CFA Level I Exam · Fixed-Income Bond Valuation: Prices and Yields
A 2-year bond pays a 4% semiannual coupon (face value 1,000) and is quoted at a yield to maturity of 6% annual rate compounded semiannually. The bond's price is closest to:
The price is about 962.80. Using semiannual periods, discount four coupons of 20 and the 1,000 principal at 3% per period. The coupons are worth 74.34 and the principal 888.49, giving a discount price because the coupon is below the yield.
- A944.90
- B962.80Correct
- C981.40
Explanation
Coupon is 20 per period, rate 3% per period, 4 periods. Annuity factor = (1 - 1.03^-4)/0.03 = 3.7171, so coupons = 74.34. Principal PV = 1,000/1.12551 = 888.49. Total = 962.83, closest to 962.80. Using 6% per period or annual periods gives the wrong values.
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