Exercise
Fill in the blank or choose the correct answer
1. Although most municipal bonds are quoted at _____, certain long-maturity revenue bonds and term bonds are quoted in terms of _____.
2. A $5,000 bond with $150 in accrued interest is selling on the market. The bond is trading at par. Which of the following statements are true?
I. The clean price of the bond is $5,000.
II. The clean price of the bond is $5,150.
III. The dirty price of the bond is $5,000.
IV. The dirty price of the bond is $5,150.
A. II and III
B. I and III
C. II and IV
D. I and IV
3. Which of the following are true statements regarding serial bonds?
I. An issuer can tailor the issue’s retirement schedule to its cash flows.
II. An underwriter can profit by the issue being split into individual strips by marketing each strip to different classes of investors.
III. Total interest payments tend to be more than those of a term bond.
IV. They allow the issuer to redeem bonds back in the market whenever it chooses.
A. I and II
B. III and IV
C. II and III
D. I and IV
4. Beach City issues $50 million in bonds that are all scheduled to reach maturity in ten years. Which of the following are true?
I. The bonds are term bonds.
II. The bonds are serial bonds.
III. The bonds will most likely be quoted in dollars.
IV. The bonds will most likely be quoted by yield.
A. I and III
B. II and IV
C. I and IV
D. II and III
Answers
1. Yield to maturity; their dollar prices
2. D. The clean price, also known as the flat price, does not include accrued interest in the price of the bond. The dirty price does include accrued interest. Most bonds trade at t