bond have no detault nsk. A bond canes some detault nsk andis exempt from federa

Question

bond have no detault nsk. A bond canes some detault nsk andis exempt from federal income taxation. 1) zero-coupon: federal Page 1 2) treasury: municioal 3) convertible: municipal Question 22 (4 points) Which of the following statements is FALSE? 10 1112 1) The APR can be regarded as the promised annual percentage rate The period in which interest is applied or the frequency of times interest is added to 13 14 1 2) an account each year is called the compounding period or compounding periods per year 3) Although an APR is quoted on an annual basis, interest can be paid semi-annually 16 17 18 APR is defined as the effective rate of return that you should earn when interests are compounded more than once a year 19 20 2 22 23 24 Question 23 (4 points) A discount bond has a yield to maturity that 2s 1) is equal to its current yieid 2) exceeds the coupon rate 3) is less than the coupon rate ) equals the bond's coupon rate egend Saved Response Unsaved Resporse Question 24 (4 points) Question 2 Saved

Explanation / Answer

Ans 1) Treasury bond has no default risk. Municipal bond exempt from federal income tax. Option 2 is correct.

Ans 2) Option 4 is incorret. So the correct otion will be the last one.

Ans 3) When yeild to maturity exceed the coupon rate then it is a discount bond. Option 2 is correct.

Ans 4) price of bond = coupon * ( 1 - (1+r/2)^(-2n))/(r/2) + face value/(1+r/2)^(2n)

where coupon = (6 % of 1000)/2 = $30

Face value = 1000

n = 5 years

need to find r

1010 = 35 * (1 - (1 + r/2)^(-10))/(r/2) + 1000/(1 + r/2)^(10)

r = 5.77%

Option 2 is correct.

Ans 5) Option 2 is correct. It is called as debenture.

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