Exam FM Bond Valuation and Yield Practice Problems

Technique orientation

What bond valuation, pricing, and yields questions are testing

A bond price is the present value of coupons and redemption proceeds at the investor’s yield. The coupon rate creates the cash flows; the yield rate values them. Keeping those roles separate turns most premium, discount, book-value, and callable-bond questions into ordinary dated cash-flow calculations.

Exam FM frequently quotes annual coupon and yield rates while coupons are paid more often. Convert both to the coupon period, count the remaining coupons, and put redemption at the final applicable date. For callable bonds, value every allowed redemption scenario needed to protect the purchaser’s stated yield rather than assuming maturity is decisive.

Recognition audit

Signals that this is the right method

A security pays coupons and a redemption amount, and its price or yield is unknown.
Coupon rate, yield rate, and payment frequency must be separated before valuation.
A premium or discount is amortized through successive book values between coupon dates.
Several call dates or redemption amounts require comparison under a yield-to-worst condition.

Before calculation

A disciplined first pass

Name the requested quantity, mark its units or time point, and identify the assumption that permits the formula. Only then insert the numerical inputs. This separates model errors from arithmetic errors and makes the answer-choice comparison auditable.

Formula core

Bond Valuation, Pricing, and Yields formulas to know

These identities are starting points, not substitutes for checking support, timing, rate periods, or independence assumptions.

Coupon-bond price

P=Fr\,a_{\overline{n}|i}+Cv^n

Fr is the coupon per period and C is the redemption value; i is the yield per coupon period.

Premium-discount decomposition

P=C+(Fr-Ci)a_{\overline{n}|i}

Price exceeds redemption when the coupon per period exceeds interest on the redemption value at the yield rate.

Book-value recursion

B_{k+1}=B_k(1+i)-Fr

Accrue the current book value at the yield, then remove the coupon paid at period end.

Three failure modes to catch

Discounting coupons at the coupon rate instead of at the purchaser’s yield rate.
Using annual nominal quotations directly with a semiannual or quarterly coupon count.
Pricing only the final maturity when an earlier call date governs the guaranteed yield.

Verified practice ledger

Exam FM bond valuation, pricing, and yields problems and solutions

The list is grouped by current official syllabus area. Every link opens a step-labeled solution, verification artifact, distractor analysis, and one fully worked original variant.

Bonds

43 verified references

Continue the study loop

Keep every worked reference in one searchable manual

The complete Exam FM manual includes all active sample-reference solutions, their wrong-choice analysis, and one independently written worked variant per reference. The free formula sheet is the compact companion for recall between practice sessions.

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Related drills

Other Exam FM technique collections

Switch techniques when you can identify the current method before writing a formula and can explain each wrong-choice mechanism.

54 verified problems

Bond Valuation, Pricing, and Yields practice problems