Skip to content

FRM Part I · FRM Exam Part I · Bond Yields and Return Calculations

A 3-year bond with a face value of 100 pays a 6% annual coupon. The yield to maturity is 5% per year with annual compounding. What is the bond's price, to the nearest cent?

The price is 102.72. Discount the 6 coupons and the final 106 cash flow at 5% annually. Because the coupon rate is above the yield, the bond trades above par. A price of 97.28 would wrongly place it at a discount.

  1. A102.72Correct
  2. B97.28
  3. C100.00
  4. D106.00

Explanation

Price = 6/1.05 + 6/1.1025 + 106/1.157625 = 5.7143 + 5.4422 + 91.5668 = 102.72. Because the coupon rate exceeds the yield, the bond trades at a premium. The 97.28 option reflects a sign error that treats it as a discount.

Did you get it right without looking?

One question tells you little. A timed set on Bond Yields and Return Calculations shows your real accuracy, how long you take and where you lose marks.

Practise Bond Yields and Return CalculationsFree diagnostic mock

More Bond Yields and Return Calculations questions