Exam FM practice problems: Bonds

10 problems · Untimed · Worked solution after each answer

Bond price, book value, premium and discount amortization, yield, coupon and redemption values, callable bonds and reinvested coupons. This drill covers topic 4 of the Exam FM syllabus, Bonds (15–25% of the exam).

4a Bond definitions
4b Bond price, book value, yield and amortization
4c Callable bonds

Line drawing of a bond certificate with a row of detachable coupons and a fountain pen

Before you start

Every problem has five options, A to E, and one correct answer, as on the real exam. Every value you need is in the problem, so you can work it with an approved calculator; the worked solution shows each step and names the mistake behind the most tempting wrong answer.
Check each answer to see the explanation before moving on. Checked answers cannot be changed.

Study guide: Bonds

Price = Fr·aₙ⌉ + C·vⁿ at the yield j per coupon period; premium/discount form: P = C + (Fr − Cj)·aₙ⌉.
The amortization of premium in coupon k is (Fr − Cj)·v^(n − k + 1); book value moves toward C over the bond’s life.
For a callable bond priced to guarantee a minimum yield: a premium bond (coupon above yield) uses the earliest call date, a discount bond the latest.
Coupons reinvested at a different rate change the accumulated value, not the price at issue.

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Original practice problems written to the published SOA syllabus; not SOA sample questions. Independent preparation, not affiliated with or endorsed by the Society of Actuaries (SOA).