A Corporate Bond Pays 8.5 Percent Interest
A corporate bond pays 8.5 percent interest. How much would a municipal bond have to pay to be equivalent to this on an aftertax basis if you are in the 35 percent tax bracket? a. B. c. d. e.
Selected Answer:
5.53 percent
Question 2
2 out of 2 points
A bonds sensitivity to changes in market interest rates decreases when the: I. time to maturity increases. II. time to maturity decreases. III. coupon rate increases. IV. coupon rate decreases.
Selected Answer:
II and III only
Question 3
2 out of 2 points
A bond dealer buys at the _____ price and sells at the _____ price.
Selected Answer:
bid; asked
Question 4
2 out of 2 points
Waterfront Properties wants to raise $3.5 million by selling some coupon bonds at par. Comparable bonds in the market have an 8 percent annual coupon, 10 years to maturity, and are selling at 101.7 percent of par. What coupon rate should Waterfront Properties set on its bonds?
Selected Answer:
7.75 percent
Question 5
2 out of 2 points
Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk?
Selected Answer:
interest rate risk premium