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CFA Level I · CFA Level I Exam · Fixed-Income Cash Flows and Types

A bond that pays interest twice a year has a stated annual coupon rate of 6% and a price equal to its par value. The bond's yield to maturity, quoted as an annual rate with semiannual compounding, is most likely:

The yield to maturity is equal to 6%. When a bond is priced at par, the required periodic yield equals the periodic coupon rate. Here that is 3% per half-year, so the semiannual-compounded annual yield equals the stated 6% coupon rate.

  1. AEqual to 6%Correct
  2. BLower than 6%
  3. CHigher than 6%

Explanation

A bond priced at par has a yield to maturity equal to its coupon rate when both use the same periodicity. The semiannual coupon rate is 3% per period, so the periodic yield is 3% and the annualized yield quoted on a semiannual bond basis is 6%.

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