CFA Level I · CFA Level I Exam · Fixed-Income Bond Valuation: Prices and Yields
A bond is priced using a semiannual-pay convention. It has a face value of 1,000, a 6% annual coupon rate, two years to maturity, and a stated annual yield of 8% compounded semiannually. The bond's price is closest to:
The price is about 963. With semiannual periods, the coupon is 30, the periodic rate is 4%, and there are four periods. The coupons are worth 108.90 and the principal 854.80, totaling roughly 963.7, a discount to par.
- A928
- B963Correct
- C1,000
Explanation
Coupon = 30 per period, rate = 4%, n = 4. PV of coupons = 30 × (1 − 1.04^-4)/0.04 = 30 × 3.6299 = 108.90. PV of principal = 1,000/1.16986 = 854.80. Price = 963.70, closest to 963. Using 8% per period would wrongly give a lower price.
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