Bubba buys a 5% municipal bond maturing in 15 years that is trading at a market price of 85 . What is the nominal yield?
Answer(s): C
5.00%. The nominal yield is the coupon rate on the bond.
Bubba buys a 5% municipal bond maturing in 15 years that is trading at a market price of 85. What is the current yield?
Answer(s): B
5.88%. The current yield is the annual interest divided by the price. The bond will pay $50 of interest per year ($1,000 face amount times 5%). Dividing by the price of $850 equals 5.88%.
Bubba buys a 5% municipal bond maturing in 15 years that is trading at a market price of 85. What is the yield to maturity using the “rule of thumb” method?
Answer(s): D
6.49%. Divide the discount from par value of $150 ($1,000 - $850) by the number of years to maturity (15) to determine the annual discount. Add the result of $10 to the annual interest ($50) to determine the total annual return. Divide the result of $60 by the average of the current price (85) and par (100). The result is 60 divided by 92.5, which equals 6.49%.
Which bond buyer index reflects the lowest average yield for municipal bonds?
the 11-bond index. This index is the highest quality index and thus reflects the lowest average yield.
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