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Bond Prices and Time Value of Money
A 7year, $1000 par, semiannual pay 8% fixed coupon bond has a market discount rate of 6% with 2 years to maturity. What is the market price of the bond closest to?
Bond Prices and Time Value of Money
Kennedy is choosing between bonds A and B. Both bonds have the same time to maturity and are trading at the same yield. Bond A has a lower coupon rate while Bond B has a higher coupon rate. Which of the 2 bonds should Kennedy choose, given that he has a preference for a bond with lower price volatility as he intends to sell the bond in the short term.
A 7% annual fixed coupon bond has 3 years to maturity.
Given the following spot rates, calculate the price (per 100 par) that the bond should be trading at.
Spot Rates
1 yr: 6.6%
2 yr: 7.1%
3 yr: 7.3%
Bond Prices: Quotes and Calculations
A $1000 par 10% semiannual fixed coupon bond with has exactly 2 years to maturity and the coupon has just been paid. The market discount rate of the bond is 8%. Calculate the price of the bond.
Bond Prices: Quotes and Calculations
~ continued from previous question
$1000 par 10% semiannual fixed coupon bond
The price of the bond was $1036.30 at the last coupon payment date and that 43 days have passed since the coupon payment, calculate the full price of the bond given the the market discount rate remains at 8%.
(Assume 183 days per half year)
Bond Prices: Quotes and Calculations
~ continued from previous question
$1000 par 10% semiannual fixed coupon bond
The full price of the bond is $1045.89, 43 days after the last coupon payment. Calculate the flat price of the bond.
(Assume 183 days per half year)
Bond Prices: Quotes and Calculations
An analyst wishes to determine the fair value of a BBrated bond that is not publicly traded. The $1000 par bond has 3 years to maturity, and annual coupon of 7%.
The analyst has found 2 comparable BBrated bonds to perform a matrix pricing to determine the bond’s value.
Comparable Bond A (5 years to maturity, YIELDTOMATURITY 8.7%)
Comparable Bond B (2 years to maturity, YIELDTOMATURITY 7.4%)
Use the interpolation method to determine a fair value for the bond.
Bond Yield Measures
A fixed 6% quarterlypay coupon bond with 5.5 years to maturity is trading at 98.6 per 100 par.
What is the effective yield of the bond?
A 10year, 8% semiannual fixed coupon callable bond can be called after 5 years from issuance at a call price of 101.
2 years after its issuance, the price of the bond has dropped to 97 per 100 par. Calculate the yieldtocall at this point.
Bond Yield Measures
A $1000 par floating rate note pays a coupon rate of 180day LIBOR plus a quoted margin of 1.5% semiannually. Given that there is exactly 2 years to maturity, and the latest 180day LIBOR is 2.8%, and the discount margin is 1.0%, what is the value of the FRN at this point?
Maturity Structure of Interest Rates
Given the following spot curve, calculate the 2y1y forward rate.
1yr spot rate (S1): 3.6%
2yr spot rate (S2): 3.9%
3yr spot rate (S3): 4.2%
4yr spot rate (S4): 4.3%
Yield Spreads
Match the following benchmarks to the spread (drag and drop).
GSpread


ISpread


Benchmark spread


Yield Spreads
A callable bond has a Zspread of 280 bp and the value of the call option is 80 bp. What is the OptionAdjusted Spread of the bond?
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The LOS are protected under the CFA Institute's copyright, and we don't have permission to duplicate them verbatim. Therefore, we've rephrased the LOS and included alphabetical labels (a, b, c, …) to simplify crossreferencing with the original LOS in the curriculum when needed.
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Are you a CFA Level I candidate, or someone who is exploring taking the CFA exam? Four years ago, I was in your shoes. I am a Computer Engineering graduate and have been working as an engineer all my life. Having developed a keen interest in finance, I decided on a career switch to the finance field and enrolled into the CFA program at the same time.
Adjusting to the drastic career change was tough. I naturally neglected the preparation for my Level I exam in June 2014. It was not until the middle of March 2014 that I realized I only had a little more than 2 months to the exam. To compound my problems, I basically did not have a preparation strategy. Having no background in finance at all, I tried very hard to read the curriculum from cover to cover, but eventually that fell flat. I can still recall the number of times I dozed off while studying, or just going back and forth trying to understand even the simplest concept. My mind simply could not keep up after a hard day at work.
Does all these sound familiar to you? Well, take heart. No matter how bleak it seems, at least sit for the exam and treat it as a learning experience. That was basically my attitude as I burrowed through my exam prep with toil and stress. By God’s grace, I did pass my Level I exam in June 2014. It was an experience I would not want to revisit though.
For the Level II exam, I endeavoured not to repeat the mistakes I made. Based on the Pareto 80/20 principle, I learnt to extract the most essential bits from the curriculum enough to give me that 80% result to pass. Being a visual learner, I took notes and summaries in pictorial form. Instead of reserving huge segments of time to study, I carved out pockets of time to learn and practise – accommodating to my fulltime job. I managed to pass my Level II and Level III exams consecutively with considerably less effort and stress than when I did my level I.
I love the CFA Program and truly value the skills and ethics that are imparted to make me a better finance professional. My desire is to help candidates who are keen to pursue this path to do so in the most effective and painless process as possible – based on the lessons that I learnt as a candidate. I have set up PrepNuggets with the vision to revolutionise learning by using technology, catering to the short attention span that we can afford. If this makes sense to you, join the PrepNuggets community by signing up for your free student account. I am confident that the materials that we have laboriously crafted will bring you closer to that dream pass with just that 20% effort. Let us do the hard work for you.
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Keith Tan, CFA
Founder and Chief Instructor
PrepNuggets
Keith is the founder and chief instructor of PrepNuggets. He has a wide range of interests in all things related to tech, from web development to elearning, gadgets to apps. Keith loves exploring different cultures and the untouched gems around the world. He currently lives in Singapore but frequently travels to share his knowledge and expertise with others.
Have you ever gotten stuck in your study because you can’t remember a formula, or what a specific term means? Now, say goodbye to scanning through all the videos and ploughing through pages and pages just to find what you are looking for. All the important formulas, definitions and diagrams you need for the exam are now at your fingertips at prepnuggets.com/glossary.
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On the 1st of March 2018, we took a bold step of faith to put our Financial Reporting and Analysis (FRA) course on Udemy.
For those of you who are new to Udemy, it is the world’s largest marketplace for online courses. Think of it like the EBay of online courses.
So imagine our trepidation in pitting our course in this highly competitive platform, against the many CFA prep providers already entrenched on the platform.
Overwhelming.
Yes, that’s the word that aptly describes the response to our course from the Udemy community.
The “Best Seller” tag from Udemy is attached to only one best selling course in its category. In just 1 month, our FRA course became the best selling CFA course on the platform. If you do a search for ‘CFA Level 1’, our course comes out on top in the search rankings.
Since the launch on 1 March, we have had more than 250 paid enrolments. While we are heartened by this figure, nothing beats knowing that our course has reached 50 countries around the world! It was simply heartwarming to receive messages from students from countries we barely know about, telling us how much they love the course and their wish that we would produce more of such courses. This certainly spurs us on to produce more materials to ease the burden of CFA candidates worldwide.
As of today, our course has a high average rating of 4.8 out of 5.0. 74% of the reviewers gave us 5 stars! We take this as endorsement that we are doing things right, and will continue in using the Pareto principle approach for our course materials. There are, of course, constructive feedback as well, and we aim to incorporate some of the feedback in producing the upcoming courses.
We are working hard to bring more of our courses to Udemy! We realise some candidates prefer to purchase courses as they need individually, so we endeavour to give more options to our potential students. Check out our Udemy Courses Page to find out which of our courses are available on Udemy for your purchase.
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