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PRMIA Exam 8006 Topic 3 Question 103 Discussion

Actual exam question for PRMIA's 8006 exam
Question #: 103
Topic #: 3
[All 8006 Questions]

What is the duration of a 10 year zero coupon bond. Assume the bond is callable (ie, the issuer can buy it back) at face value at any time during its existence.

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Suggested Answer: D

The key point in this question is that the bond is zero coupon, and can only be called at face value. Since the bond is zero coupon, its value will always be less than its par value at any time during its existence (as any interest rate will be a positive number). Therefore the issuer will never exercise the call. Thus the bond will have a duration equal to what an equivalent non-callable bond would have.

Since zero coupon bonds have a duration equal to their maturity, the bond's duration is 10 years.


by Tina at Nov 14, 2024, 03:23 PM

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Rozella
23 days ago
If the bond is callable, the duration could be less than 10 years, so I'm going to go with B. Unless the issuer is feeling particularly generous, then it's D.
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Val
25 days ago
A zero coupon bond? More like a zero fun bond, am I right? Anyway, I'm sticking with D, the full 10 years.
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Ernie
26 days ago
But isn't the bond callable at any time? So the duration could be less than 10 years.
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Ma
27 days ago
Hmm, a zero coupon bond with a 10-year maturity and a callable feature? That's a tricky one. I'll go with D, just to be safe.
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Skye
2 days ago
User 2: I'm not sure, but I'll go with B) 5 years.
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Galen
9 days ago
User 1: I think it's D) 10 years.
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Whitley
14 days ago
User 4: D) 10 years seems like the safest option.
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Vannessa
19 days ago
User 3: I'll choose D) 10 years as well.
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Dong
20 days ago
User 2: I'm not sure, but I'll go with D) 10 years too.
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Brandon
23 days ago
User 1: I think it's D) 10 years.
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Phyliss
30 days ago
I agree with Delisa, the duration should be 10 years because it's a 10 year bond.
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Delisa
1 months ago
I think the duration of a 10 year zero coupon bond is 10 years.
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Sabrina
1 months ago
If the bond is callable at any time, the duration would be less than 10 years. I think B is the right answer here.
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Garry
2 months ago
The duration of a 10-year zero coupon bond is 10 years, regardless of whether it's callable or not. D is the correct answer.
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Nohemi
6 days ago
D) 10 years
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Slyvia
7 days ago
C) 1 year
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Lindsey
21 days ago
B) 5 years
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Myong
27 days ago
A) 0 years
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