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Basic Question 1 of 10

The real risk-free rate is 0.75%. Average inflation over the next year is 2%. Investors require 1.5% for future inflation uncertainty. What would be the price of a default-free bond with a face value of $1,000 and one full year to maturity?

A. $988
B. $973
C. $959
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User Contributed Comments 1

User Comment
davidt87 feel like its worth stating that it's a zero-coupon bond
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Your review questions and global ranking system were so helpful.
Lina

Lina

Learning Outcome Statements

explain how the phase of the business cycle affects policy and short-term interest rates, the slope of the term structure of interest rates, and the relative performance of bonds of differing maturities;

describe the factors that affect yield spreads between non-inflation-adjusted and inflation-indexed bonds;

CFA® 2025 Level II Curriculum, Volume 6, Module 37.