CFA Level I · CFA Level I Exam · Fixed-Income Instrument Features
A 3-year bond with a face value of 1,000 pays an annual coupon of 8%. An investor buys it at par immediately after a coupon payment and holds it to maturity. The total cash the investor receives over the bond's remaining life, including principal, is closest to:
The investor receives about 1,240 in total. Three annual coupons of 80 sum to 240, and the 1,000 face value is repaid at maturity. Counting only one coupon plus principal gives 1,080, which understates the total.
- A1,080
- B1,240Correct
- C1,320
Explanation
Each annual coupon is 8% x 1,000 = 80. Over 3 years, coupons total 240. Adding the 1,000 principal gives 1,240. The value 1,080 counts only one year's cash flows, and 1,320 incorrectly adds a fourth coupon.
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