This week’s study question from the Solomon Online Exam Simulator question database is now available.
A flat bond is a bond that:
A. Has a fixed interest rate
B. Is quoted in terms of its yield-to-maturity
C. Has no call provision
D. Does not trade with accrued interest
Correct Answer: D. Does not trade with accrued interest
Rationale: Bonds are quoted at a flat price, also called a clean price, meaning that accrued interest is not factored into the quotation. Bonds generally trade at a “dirty” price, with accrued interest factored in. Sometimes bonds trade flat, however, meaning that the bond carries no accrued interest. Bonds in default and zero coupon bonds are two examples of bonds that trade flat.
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