A Corporate Bond Pays 8.5 Percent Interest

A corporate bond pays 8.5 percent interest. How much would a municipal bond have to pay to be equivalent to this on an aftertax basis if you are in the 35 percent tax bracket? a. B. c. d. e.

Selected Answer: 5.53 percent

Question 2 2 out of 2 points

A bond's sensitivity to changes in market interest rates decreases when the: I. time to maturity increases. II. time to maturity decreases. III. coupon rate increases. IV. coupon rate decreases.

Selected Answer: II and III only

Question 3 2 out of 2 points

A bond dealer buys at the _____ price and sells at the _____ price.

Selected Answer: bid; asked

Question 4 2 out of 2 points

Waterfront Properties wants to raise $3.5 million by selling some coupon bonds at par. Comparable bonds in the market have an 8 percent annual coupon, 10 years to maturity, and are selling at 101.7 percent of par. What coupon rate should Waterfront Properties set on its bonds?

Selected Answer: 7.75 percent

Question 5 2 out of 2 points

Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk?

Selected Answer: interest rate risk premium

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