Worked solution · Exam FM
This Exam FM sample reference tests Bond Valuation. The given redemption present value fixes the term discount factor; the coupon annuity factor is 8.87037, so price is 955.81, nearest choice C.
Independent solution
Setup
Work in half-year periods, where the coupon is 40 and the yield per period is 5%.
Model
Use the stated present value of redemption to recover the terminal discount factor without solving for n.
Compute
That factor determines the coupon-annuity value; adding the redemption present value gives 955.81.
Answer
The bond purchase price rounds to 956, which is 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
A bond redeems for 1,100 and pays level annual coupons. Its annual effective yield is 6%. The present value of redemption is 550, and the total bond price is 1,050. Determine the annual coupon.
Redemption has discount factor 0.5, making the coupon annuity factor 8.3333; the 500 coupon value therefore requires coupon 60, choice C.
Setup
Use the redemption present value to identify the discount factor through maturity.
Model
Convert that factor into the present-value factor for the annual coupon annuity.
Compute
Coupons account for 500 of the price, so dividing by 8.333333 gives 60.
Answer
The annual coupon is 60, corresponding to 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.
