CFA CFA Level 1 Question of the Week – Fixed Income

Question of the Week – Fixed Income

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    • Avatar of sridharcwsridharcw
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        • CFA Level 1
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        What is the right answer

      • Avatar of AdaptPrepAdaptPrep
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          • Undecided
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          The right answer is the one PassedTense (check mark logo) voted for.

          The first coupon rate is 3.25% +
          1.25% = 4.50%. That rate is floored up to 5.00%. The semiannual coupon payment
          is 5.00% * $25,000 * 0.5 = $625. (Remember that as these are semiannual
          coupons; the actual payment is half the annual amount.)

          The second coupon rate is 4.75% +
          1.25% = 6.00%. (The floor does not affect this rate.) The semiannual coupon
          payment is 6.00% * $25,000 * 0.5 = $750.

          The third coupon rate is 5.25% +
          1.25% = 6.50%. (The floor does not affect this rate either.) The semiannual
          coupon payment is 6.50% * $25,000 * 0.5 = $813.

          The total payout then is $625 +
          $750 + $813 = $2,188.

        • Avatar of Thefaith_123Thefaith_123
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            • CFA Level 1
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            @PassedTense Since TIPS is capital indexed bonds. So we need to adjust principal value in each period and then calculate for the coupon in each period right?
            It’s slightly more than 2,200. It would be the same answer anyway.

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