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Basic Question 0 of 5
Consider a 7%-coupon bond that pays semi-annually, has eight years to maturity and a face value of $100. The market requires an interest rate of 8% on bonds of this risk level. What is this bond's price?
B. $94.17
C. $106.05
A. $91.15
B. $94.17
C. $106.05
User Contributed Comments 16
| User | Comment |
|---|---|
| synner | where did they get FV=100? |
| Done | maturity |
| smillis | The question doesn't state FV of $100, you have to deduce it given the magnitude of the answers... |
| Vadik | I/Y should be 8% in case of semi-annual payments, i mean if p/y set as 2. |
| Yurik74 | Usually annual interet rate is quoted unless indicated otherwise |
| mattg | The convention in bond markets is to quote annual interest rates that are double semi-annual rates". The question is saying the bond pays a TOTAL of 7% out each year: 3.5% every six months |
| DonAnd | question did say 'face value of $100' |
| hit81 | face value=par value = 100 |
| moneyguy | I was having problems with the BAii giving wrong TVM answers. What I had to do was 2nd, I/Y and change from 12 to 1 for these bond problems. I/Y was set to 12 for monthly compounding. I hope this helps others as I was very confused. Happy calculating everyone! |
| ascruggs92 | Future value = Face Value = Par Value = 100. |
| Inaganti6 | hahaha the question DID state the FV. |
| abs013 | Do we just ignore the 7%? |
| abs013 | Ignore my last comment |
| khalifa92 | LOOL people really didn't see the hidden 100, dunno what ull do when doin the exam nervously. |
| khalifa92 | if the question doesn't state the FV then we use 1000 because it's mostly used in the states. |
| ZainabA | Can someone please write the formula with the solution? i'm a little bit confused |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
compare effective convexities of callable, putable, and straight bonds;
CFA® 2025 Level II Curriculum, Volume 4, Module 28.