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75. What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4
percent for an investor in the 28 percent tax bracket?
76. Rank from lowest credit risk to highest credit risk the following bonds, with the same time
to maturity, by their yield to maturity: Treasury bond with yield of 5.55 percent, IBM bond with
yield of 7.95 percent, Trump Casino bond with a yield of 9.15 percent and Banc Ono bond with a
yield of 6.12 percent.
77. Consider a 4.5 percent TIPS with an issue CPI reference of 187.2. At the beginning of this
year, the CPI was 199.5 and was 213.7 at the end of the year. What was the capital gain of the
TIPS in dollars?
78. Rank from highest credit risk to lowest credit risk the following bonds, with the same time
to maturity, by their yield to maturity: Treasury bond with yield of 6.55 percent, IBM bond with
yield of 10.95 percent, Trump Casino bond with a yield of 9.15 percent, and Banc Ono bond with a
yield of 9.46 percent.
79. Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal
bond has a par value of $5,000, what is the price of the bond in dollars?
80. A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7,
what is the current interest payment? (Assume semi-annual interest payments and a par value of
$1,000.)
81. A 5.125 percent TIPS has an original reference CPI of 191.8. If the current CPI is 188.3,
what is the par value of the TIPS?
82. A 7.5 percent coupon bond with nine years left to maturity is priced to offer a 10.4
percent yield to maturity. You believe that in one year, the yield to maturity will be 8 percent.
What is the change in price the bond will experience in dollars? (Assume interest payments are
semiannual and par value is $1,000.)
83. A 6.75 percent coupon bond with 13 years left to maturity can be called in two years. The
call premium is one year of coupon payments. It is offered for sale at $919.75. What is the yield to
call of the bond? Assume interest payments are paid semi-annually and par value is $1,000.
84. A 5.5 percent coupon municipal bond has 16 years left to maturity and has a price quote
of 92.55. The bond can be called in nine years. The call premium is one year of coupon payments.
Compute the bond's current yield. Assume interest payments are paid semi-annually and a par
value of $5,000.
85. A 5.5 percent coupon municipal bond has 16 years left to maturity and has a price quote
of 92.55. The bond can be called in nine years. The call premium is one year of coupon payments.
Compute the bond's yield to maturity and yield to call. Assume interest payments are paid semi-
annually and a par value of $5,000.
86. An 8 percent coupon municipal bond has 15 years left to maturity and has a price quote
of 98.5. The bond can be called in six years. The call premium is one year of coupon payments.
Compute the bond's yield to call and determine if the bond will be called. Assume interest
payments are paid semi-annually and a par value of $5,000.
87. An 8% coupon municipal bond has 15 years left to maturity and has a price quote of
102.0. The bond can be called in 6 years. The call premium is one year of coupon payments.
Compute the bond's yield to call and determine if the bond will be called. Assume interest
payments are paid semi-annually and a par value of $5,000.
88. A corporate bond with a 5 percent coupon has 10 years left to maturity. It has had a
credit rating of BBB and a yield to maturity of 8.0 percent. The firm has recently gotten into some
trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate
will be 9 percent. What will be the change in the bond's price in dollars? Assume interest
payments are paid semi-annually and par value is $1,000.
89. A corporate bond with an 8.5 percent coupon has 10 years left to maturity. It has had a
credit rating of A and a yield to maturity of 10 percent. The firm has recently gotten into some
trouble and the rating agency is downgrading the bonds to BBB. The new appropriate discount
rate will be 11.5 percent. What will be the change in the bond's price in dollars? Assume interest
payments are paid semi-annually and par value is $1,000.
90. Junk bonds are those bonds with a credit rating of:
91. Which of following are backed only by the reputation and financial stability of the
corporation?
92. Investment grade bonds include those bonds with ratings:
93. Which of the following statements is correct?
94. Which of the following statements is correct?
95. Sally is choosing between two bonds both of which mature in 15 years and have the same
level of risk. Bond A is a municipal bond that yields 5.25 percent. Bond B is a corporate bond that
yields 7.75 percent. If Sally is in the 30 percent tax bracket, which bond should she select and
why?
96. Sally is choosing between two bonds both of which mature in 15 years and have the same
level of risk. Bond A is a municipal bond that yields 5.75 percent. Bond B is a corporate bond that
yields 7.75 percent. If Sally is in the 28 percent tax bracket, which bond should she select and
why?
97. Sally is choosing between two bonds both of which mature in 15 years and have the same
level of risk. Bond A is a municipal bond that yields 7.20 percent. Bond B is a corporate bond that
yields 10.00 percent. If Sally is in the 28 percent tax bracket, which bond should she select and
why?
