CFA CFA Level 1 Question of the Week: Level 1 – Fixed Income

Question of the Week: Level 1 – Fixed Income

  • This topic has 3 replies, 3 voices, and was last updated Dec-20 by Anonymous.
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    • MarkMeldrum
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      A 9-year $1,000 bond that pays no coupon is trading at $591.89 with a yield of 6%.  It would least likely be referred to as a:

      • A. couponless bond.
      • B. zero-coupon bond.
      • C. pure discount bond.
    • SPV
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      Can someone explain the difference between pure discount and zero-coupon bonds, pretty please?

    • MarkMeldrum
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      The correct answer is Option A. 

      Bonds that pay no coupon prior to maturity are called zero-coupon bonds or pure discount bonds.  These bonds are sold at a discount to their par value and the entire discount is considered interest, which, while earned each year, is all paid at maturity when the bondholder receives the par value.

    • Anonymous
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      Can someone explain the difference between pure discount and zero-coupon bonds, pretty please?

      zero coupon bonds are issued at discount, so the discount is actually the interest u earn while u hold the bond till the maturity

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