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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
3 months 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
3 months 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
3 months ago
But isn't the bond callable at any time? So the duration could be less than 10 years.
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Ma
3 months 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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Milly
2 months ago
User 4: I'll go with C) 1 year, just to mix it up.
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Kris
2 months ago
User 3: I agree with Skye, D) 10 years sounds right.
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Skye
3 months ago
User 2: I'm not sure, but I'll go with B) 5 years.
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Galen
3 months ago
User 1: I think it's D) 10 years.
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Whitley
3 months ago
User 4: D) 10 years seems like the safest option.
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Vannessa
3 months ago
User 3: I'll choose D) 10 years as well.
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Dong
3 months ago
User 2: I'm not sure, but I'll go with D) 10 years too.
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Brandon
3 months ago
User 1: I think it's D) 10 years.
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Phyliss
4 months ago
I agree with Delisa, the duration should be 10 years because it's a 10 year bond.
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Delisa
4 months ago
I think the duration of a 10 year zero coupon bond is 10 years.
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Sabrina
4 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
4 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
3 months ago
D) 10 years
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Slyvia
3 months ago
C) 1 year
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Lindsey
3 months ago
B) 5 years
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Myong
4 months ago
A) 0 years
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