FIN 360 CH. 6

a.

Using the financial calculator:
PV = −75.75
FV = 100
PMT = 0
N = 10
Solve for I/Y then multiply with 2. I/Y = 2.816%; Yield to maturity = 2 × 2.816 = 5.632%
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Terms in this set (20)
21. A life insurer owes \$550,000 in eight years. To fund this outflow, the insurer wishes to buy STRIPS that mature in eight years. The STRIPS have a \$5,000 face value per STRIP and pay a 6 percent APR with semiannual compounding. How much must the insurer spend now to fully fund the outflow (to the nearest dollar)?

A. \$110,000
B. \$342,742
C. \$355,224
D. \$362,355
E. \$370,890
23. Which one of the following bonds is likely to have the highest required rate of return, ceteris paribus?

A. AAA-rated non-callable corporate bond with a sinking fund
B. AA-rated callable corporate bond with a sinking fund
C. AAA-rated callable corporate bond with a sinking fund
D. High-quality municipal bond
E. AA-rated callable corporate bond without a sinking fund
24. On July 1, 2012, you purchase a \$10,000 par T-note that matures in five years. The coupon rate is 8 percent and the price quote is 98:6. The last coupon payment was May 1, 2012, and the next payment is November 1, 2012 (184 days total). The accrued interest is

A. \$132.61.
B. \$101.00.
C. \$50.54.
D. \$40.65.
E. \$35.67.
26. Interest income from Treasury securities is ________________, and interest income from municipal bonds is always ________________.

A. exempt from federal taxes; exempt from all taxes
B. taxable at the state level only; exempt from state taxes only
C. taxable at federal level only; exempt from federal taxes
D. taxable at the state level; taxed at the federal level
E. totally tax exempt; exempt from state taxes
27. An investor is in the 28 percent federal tax bracket and pays a 9 percent state tax rate and 4 percent in local income taxes. For this investor a municipal bond paying 6 percent interest is equivalent to a corporate bond paying _____ interest.

A. 11.79 percent
B. 10.17 percent
C. 9.08 percent
D. 9.68 percent
E. 8.47 percent