FIN 375 TEST 2 QUESTIONS AND
ANSWERS
Which of the following yield calculations on a treasury bill provides the best comparison
yield for competing coupon-bearing securities of the same maturity? - Answer- bond
equivalent rate
A repurchase agreement is like a secured loan because - Answer- it involves collateral,
in this case the sale of a security under agreement to repurchase
TIPS have less _______ risk than "regular" Treasury securities of the same maturity. -
Answer- price
You purchase a treasury inflation-protected note with an original principal amount of
$2,000,000 and a 2.8 percent annual coupon (paid semiannually). what will the first
coupon payment be if the semiannual inflation over the first six months is 1.2%? -
Answer- $28,336
If average corporate bond and tax-exempt municipal bond rates were 8.33% and 6.25%
respectively, at what marginal tax rate would an investor be indifferent between the
two? - Answer- 25%
Everything else being equal, a bond will set a higher yield if it - Answer- has a call
provision
Default risk premiums vary _______ with the _____ of the security - Answer- directly;
default risk
(with reference to the data above) the default risk premium on the 90-day commercial
paper above is - Answer- .17%
(with reference to the data above) which 20 year investment would an investor prefer if
their marginal tax rate was 28% between owning the corporate bond and the municipal
bond? - Answer- Municipal Bond AA, 20 year
A $1000 bond with an 8.2% coupon rate, interest paid semiannually, and maturing in six
years is currently yielding 7.6% in the market. what is the current price of the bond? -
Answer- $1,028.48
Duration is a measure of - Answer- bond price volatility
ANSWERS
Which of the following yield calculations on a treasury bill provides the best comparison
yield for competing coupon-bearing securities of the same maturity? - Answer- bond
equivalent rate
A repurchase agreement is like a secured loan because - Answer- it involves collateral,
in this case the sale of a security under agreement to repurchase
TIPS have less _______ risk than "regular" Treasury securities of the same maturity. -
Answer- price
You purchase a treasury inflation-protected note with an original principal amount of
$2,000,000 and a 2.8 percent annual coupon (paid semiannually). what will the first
coupon payment be if the semiannual inflation over the first six months is 1.2%? -
Answer- $28,336
If average corporate bond and tax-exempt municipal bond rates were 8.33% and 6.25%
respectively, at what marginal tax rate would an investor be indifferent between the
two? - Answer- 25%
Everything else being equal, a bond will set a higher yield if it - Answer- has a call
provision
Default risk premiums vary _______ with the _____ of the security - Answer- directly;
default risk
(with reference to the data above) the default risk premium on the 90-day commercial
paper above is - Answer- .17%
(with reference to the data above) which 20 year investment would an investor prefer if
their marginal tax rate was 28% between owning the corporate bond and the municipal
bond? - Answer- Municipal Bond AA, 20 year
A $1000 bond with an 8.2% coupon rate, interest paid semiannually, and maturing in six
years is currently yielding 7.6% in the market. what is the current price of the bond? -
Answer- $1,028.48
Duration is a measure of - Answer- bond price volatility
