Worked solution · Exam FM
This Exam FM sample reference tests Bond Valuation. Prospective book values after coupons six and seven are linear in coupon rate r; setting the discount accumulation BV₇ − BV₆ to 4.36 gives r = 4.29%, choice C.
Independent solution
Setup
The half-year yield is 3.6%, while the semiannual coupon is 500r.
Model
Write the two adjacent post-coupon book values from their remaining coupons and par redemption.
Compute
For a discount bond the book value increase in the seventh period is 4.36; solving that difference yields r = 0.0429.
Answer
The annual coupon rate is therefore about 4.3%, choice C.
Test the method on unseen problems
30 original bonds problems with complete solutions and wrong-choice analysis. Written for Exam FM, not copied from the SOA set. One-time $19 PDF.
Original practice · fully worked
Immediately after coupon 6, a par-redemption bond has book value 940. Its periodic yield is 5%. The book value immediately after coupon 7 is 950. Determine the coupon paid at coupon 7.
The recursion 950 = 940(1.05) − C gives coupon C = 37, choice C.
Setup
Book value first earns the periodic yield and then falls by the coupon paid.
Model
Insert the two adjacent post-coupon values into the one-period recursion.
Compute
Effective interest is 47, while book value rises by 10; the difference is a coupon of 37.
Answer
The coupon amount is 37, which is choice C.
Keep practicing
These references share syllabus concepts or sit nearby in the official sequence. All 96 Exam FM bonds practice problems.
Drill the method: Exam FM Bond Valuation, Pricing, and Yields problems
Keep studying
Work through the related free solutions for this topic, review the formulas you used, or keep every current Exam FM solution in one searchable PDF.
